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Reinegar corporations has just issued a 25 year par bond

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Reference no: EM13480756

Problem 1

Bond A

Bond B

Unit

Maturity

4

7

Years

Coupon

5%

6%

Annual

Price

101.79

102.85

-

You know for certain that the 3 year rate in 4 years will be 8% (annually compounded).

Would it be better to buy bond A or purchase bond B hold it for 4 years and sell it?Justify you answer.

Problem 2

Reinegar Corporation's has just issued a 25 year par bond with a 10% semi-annual coupon. The company's bankers assure Rienegar management that it can raise $3,000,000 by issuing 25-year Original Issue Discount (OID) bonds bearing a 6.25% semiannual coupon.What will be the par value of the OID issue?

Reference no: EM13480756

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