Question

Bond J has a coupon rate of 3%, Bond K 9%, both have 18 years maturity?

Answer 1

The coupon rate of Bond J is 3% and Bond K is 9%, both with a maturity of 18 years. To calculate their present value, use the present value formula and the discount rates of 8% and 11% respectively.

Step-by-step explanation:

The coupon rate of a bond represents the annual interest payment as a percentage of the bond's face value. Bond J has a coupon rate of 3% and Bond K has a coupon rate of 9%. Both bonds have a maturity of 18 years, which means they will make interest payments for 18 years before returning the face value at the end.

To calculate the value of these bonds, you need to use the present value formula. The present value is the discounted value of future cash flows. The discount rate is the rate of return required by the investor. If the discount rate is 8%, you calculate the present value of cash flows from Bond J and Bond K over 18 years using the discount rate of 8%.

If the discount rate is 11%, you calculate the present value of cash flows from Bond J and Bond K over 18 years using the discount rate of 11%.

Answer 2

Bond J has a coupon rate of 3%, Bond K has a coupon rate of 9%, and both bonds have an 18-year maturity.

Step-by-step explanation:

The coupon rate of a bond represents the annual interest payment as a percentage of the bond's face value. In this case, Bond J has a coupon rate of 3%, while Bond K has a coupon rate of 9%. This means that Bond J pays 3% of its face value annually in interest, and Bond K pays 9%.

To calculate the annual interest payment for each bond, we use the formula:

Annual Interest Payment =
`\left( \frac{\text{Coupon Rate}}{100} \right) * \text{Face Value} \]`

For Bond J:

Annual Interest Payment for Bond J =
`\left( (3)/(100) \right) * \text{Face Value} \]`

For Bond K:

Annual Interest Payment for Bond K =
`\left( (9)/(100) \right) * \text{Face Value} \]`

After obtaining the annual interest payments, we can compare the total interest paid by each bond over the 18-year period by multiplying the annual interest payment by the number of years. This comparison will reveal the total interest income generated by each bond over their respective maturities.