Week 3 Problem
Your company president is considering investing approximately $10,000 in bonds issued by the local municipal district. She knows you are an accounting major and has come to you for advice. She provides you with the following information about the bonds:
The bonds are secured.
The bonds are “callable.”
The bonds are 8%, 20-year bonds.
The bonds are available at 103.
She has never invested in bonds and does not understand bond terminology. She is confused about why she will have to pay more than $10,000 for her initial investment in the bonds. What will you tell her to help her understand the basics of investing in bonds? Will you advise her to invest in the bonds? Why or why not?
Answer the question in memo format