1. You have the option of purchasing a $1,000, 6% coupon bond with interest payable semiannually and a remaining term of 10 years for $900, or a $1,000 zero coupon bond with a remaining term of 10 years for $500. Interest on the zero is also compounded semiannually. Which bond should you buy? Why?
2. You have the option of purchasing a $1,000, 6% coupon bond with interest payable semiannually and a remaining term of 10 years, or an annually compounded $1,000, zero coupon bond with a remaining term of 10 years. The nominal market yield is 8% for both bonds, what would you pay for each bond ($1,000 face value)?