Question

Problem 7-8 The Mariposa Co. has two bonds outstanding. One was issued 25 years ago at a coupon rate of 9%. The other was issued 5 years ago at a coupon rate of 9%. Both bonds were originally issued with terms of 30 years and face values of $1,000. The going interest rate is 12% today a. What are the prices of the two bonds at this time? Assume bond coupons are paid semiannually. Round PVFA and PVF values in intermediate calculations to four decimal places. Do not round other intermediate calculations. Round the answers to the nearest cent. Old: $ New: $ b. Discuss the result of part (a) in terms of risk in investing in bonds. The input in the box below will not be graded, but may be reviewed and considered by your instructor

Answer 1

rate positively..

Ans a)	We have to use financial calculator to solve this
	put in calculator for each individual cases-
			Old		New
	FV		1000		1000
	PMT	1000*9%/2	45	1000*9%/2	45
	I	12%/2	6%	12%/2	6%
	N	5*2	10	25*2	50
	Compute PV		($889.60)		($763.57)
	Therefore Old=		$889.60
	New =		$763.57
Ans b)	we can see that price of new bond is lower even both the bond has same maturity, coupon rate.
	But new bond has higher maturity period left, therefore New bond has higher risk compared to old band.