solution

Calculate the present value of the following bonds:

Bond A: The principal of the bond is € 30000 and it has a life to maturity of 20 years. For the first 6 years there are no interest payments on the bond, for the next 8 years the interest on the bond is € 1200 every six months and for the last 6 years the interest will be € 1500 every six months. With the last interest payment, the principal will be repaid.

Bond B: The principal of the bond is € 30000 and it has a life to maturity of 20 years. No interest payments will be paid during the life of the bond, but the principal will be repaid at the end of the loan period. Both bonds have an annual yield of 10%, which is calculated every six months (compounded semi-annually).