Answer the following problems using Chapter 16 of the textbook as well as PowerPoint slides.

1) If you were to purchase 5 bonds with a par value of $1000 each with a 7% coupon rate payable annually. How much interest will you earn after 2 years? Show your work.

2) Decide which of the following bonds would bring the greater rate of return if kept until maturity. Both bonds have a $1000 par value and assume they can be sold at face value upon maturity.

Bond 1 has 10 years to maturity with a coupon rate of 5% and a price of $900.

Bond 2 has 8 years to maturity with a coupon rate of 6% and a price of $875.

Determine which bond would have a higher annual rate of return based on time until maturity and total return from the bond. Show all calculations and your reasoning for your choice.

You do not need to make PV or FV calculations as the example in the book uses. Instead you would use a formula where Rate of Return = ($ Earned/$ Invested) * 100 to compare the rate of return of each or calculate the yearly return for each option.