Maria has about $200,000 to invest for 5 years. Given her current investments, her adviser has...

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Maria has about $200,000 to invest for 5 years. Given hercurrent investments, her adviser has recommended that she investthe money in corporate bonds. Her adviser has suggested twoalternatives. Alternative 1 is $200,000 face value of bonds withquarterly coupon payments and a coupon rate of 8% APR compoundedquarterly. These bonds were issued five years ago and have exactlyfive years remaining. They are selling at a price that implies ayield to maturity of 7.90% APR compounded quarterly. Alternative 2is a five-year zero-coupon bond with a face value of $297,000 and acurrent price of $200,000. Assume annual compounding on thezero-coupon bond.
What is the current price of the $200,000 face value bonds?
What is the yield to maturity on the zero-coupon bond?
Assuming the two alternatives have the same default risk, whichof these two alternatives would you recommend to Maria and why? Youcan assume that Maria will hold the investments until maturity andwill be able to reinvest any intervening cash flows at thatinvestment’s yield to maturity. Be sure to address the comparativereturn of each investment and whether the pattern of cash flowsmatters under the assumptions given.

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What is the current price of the 200000 face value bonds 4 marks 81004790411179044510017904452000001002008195476 What is the yield to maturity on the zerocoupon bond 2 marks 297000200000151823 Assuming the two See Answer

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Maria has about $200,000 to invest for 5 years. Given hercurrent investments, her adviser has recommended that she investthe money in corporate bonds. Her adviser has suggested twoalternatives. Alternative 1 is $200,000 face value of bonds withquarterly coupon payments and a coupon rate of 8% APR compoundedquarterly. These bonds were issued five years ago and have exactlyfive years remaining. They are selling at a price that implies ayield to maturity of 7.90% APR compounded quarterly. Alternative 2is a five-year zero-coupon bond with a face value of $297,000 and acurrent price of $200,000. Assume annual compounding on thezero-coupon bond.What is the current price of the $200,000 face value bonds? What is the yield to maturity on the zero-coupon bond? Assuming the two alternatives have the same default risk, whichof these two alternatives would you recommend to Maria and why? Youcan assume that Maria will hold the investments until maturity andwill be able to reinvest any intervening cash flows at thatinvestment’s yield to maturity. Be sure to address the comparativereturn of each investment and whether the pattern of cash flowsmatters under the assumptions given.