Peter owns a puttable $4,000 bond with a 3% coupon. The bond has four years left to maturity. If he puts the bond early, he must pay a $50 fee. Peter decides to hold on to the bond until it reaches maturity. How much more money could he earn if he puts the bond and buys a $5,000 zero coupon bond with his principal?

Select the best answer from the choices provided.

A.$470
B.$500
C.$480
D.$520

Could someone explain how to solve this? I have no clue what to do.

Question

Peter owns a puttable $4,000 bond with a 3% coupon. The bond has four years left to maturity. If he puts the bond early, he must pay a $50 fee. Peter decides to hold on to the bond until it reaches maturity. How much more money could he earn if he puts the bond and buys a $5,000 zero coupon bond with his principal?

 

 
Select the best answer from the choices provided. 

A.$470
B.$500
C.$480 
D.$520

Could someone explain how to solve this? I have no clue what to do.

tkhunny · Answer

What happens when he PUTS the Bond?