Given the opportunity to invest in one of the three bonds listed below, which would you purchase? Assume an interest rate of 7%.
|Bond||Face Value||Coupon Rate||Maturity||Price|
Intrinsic prices of bond will be calculated and then compared as;
Bond A = $971.96; Bond B = $1,048.81; and Bond C = $1,136.62
On the basis of these intrinsic values, I think Bond c is the best option among all and it must also be priced at $1,136 to be sold for $990.
Based on these prices, YTM will be calculated as;
Bond A = 5.05%; Bond B = 7.6%; and Bond C = 8.62%.
In the case of YTM, again Bond C has the highest Yield to Maturity and if the Bond B and C would be selling at premiums because coupon rate is higher than the market rate.
So, I think Bond C is the best option for investor to buy and it is better than both Bond A and B having coupon rate but over a short period of time.