Bond M has a face value of 20k and matures in 20 years. The bond makes NO payments for the first SIX years, then pays 800 every SIX months over the subsequent EIGHT years, and finally pays 1000 every SIX months over the last six years. Bond N also has a face value 20k and a maturity of 20 years. It makes no coupon payments over the life of the bond. If the required return on both bonds is 5.9% compounded semianually, what is the current price of bond M and Bond N?
The key to solving this problem is to calculate the PV of each series of payments, then add them together. The payments for each six months are doubled in the PV formula.
The second bond is a simple PV calculation as there are no payments.
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