Indifferent between investing in coupon bond and annuity

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You have some money that you would like to invest. One investment that you are considering is an 8.5% coupon bond that makes quarterly payments and matures in 8 years. It has face value of $1000. Another is an annuity that makes quarterly payments for 8 years. You notice in the Wall Street Journal that you could also purchase a zero coupond bond for $834.40 with a par value of $1000 that mature in 8 years. Assume a flat rate term structure of interest rates ( that is that all the YTMs from years 1 to 8 are the same).

A. What is the coupon bond price?

B. What quarterly annuity payment is required to make you indifferent between investing in the coupon bond and the annuity?

Reference no: EM13806034

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