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(solution) Suppose that the Johnson family has the option of purchasing two



Suppose that the Johnson family has the option of purchasing two bonds.

Bond A is a $4000 10% 10 year bond paying annual coupons with redemption value

$2000, which can be purchased at a premium for $3000.

Bond B is a $4000 10% 10 year bond paying annual coupons with redemption value

$3000, which can be purchased at a discount for $2000.

Suppose further that each bond has a lockout period of 5 years, after which a put option

can be placed at the end of years (6; 7; 8; 9) for put premium of $1500.


Compile a technical report to explain to the Johnson family which bond option you would
recommend, and at which time (if any) they should exercise their put option. Please explain findings in about a paragraph or more. Calculate P.V, accumulated values and yield rates. (please show all work) Include graphs or figures to explain your findings. 


Given that:

 

Suppose that the Johnson family has the option of purchasing two bonds

 

Bond A is a $4000 10% 10 year

 

10

 

That is 4000 10 4000

 

100

 

Face value redemption period and interest rate of Bond A...

 


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Sep 13, 2020

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