Emmett has a choice between two bonds-Bond A and Bond B. Both bonds have a future value of $10,000. Bond A earns 3% interest and Bond B earns 5% interest and both bonds have a term to maturity of 3 years.
A) Calculate the PV (present value) of the two bonds.
B) If Emmett decides to ignore the relative risk of the two bonds and is only interested in locking up the least amount of money in a bond today, which bond will he choose?
C) From this example, what can you say about the relationship between bond prices and interest rates?

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The Answer of Emmett has a choice between two bonds-Bond A and Bond B. Both bonds have a future value of $10,000. Bond A earns 3% interest and Bond B earns 5% interest and both bonds have a term to maturity of 3 years.
A) Calculate the PV (present value) of the two bonds.
B) If Emmett decides to ignore the relative risk of the two bonds and is only interested in locking up the least amount of money in a bond today, which bond will he choose?
C) From this example, what can you say about the relationship between bond prices and interest rates?

Emmett Has a Choice Between Two Bonds-Bond a and Bond