An investor has the choice of purchasing a 17-year annual bond that has annual coupon payment of $50, each year plus its par-value in the final year. The current price of the bond is $1,058.54. If the investor, believes they can re-invest the coupon payments at a 5.25% interest rate.
How much money will the investor have in 17 years?
Suppose there is a zero-coupon bond, that has the same yield to maturity, and maturity date as the 17-year bond. How, many zero- coupon bonds would the investor need to purchase to have the same total cash flow, as the 17-year coupon paying bond. (Assume the investor can buy partial bonds.)
