The tables below show respectively the characteristics of

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The tables below show, respectively, the characteristics of two annual-pay bonds from the same issuer with the same priority in the event of default, and spot interest rates. Neither bond's price is consistent with the spot rates. Using the information in these tables, recommend either bond A or bond B for purchase.

 


Bond Characteristics

 


Bond A

Bond B

Coupons

Annual

Annual

Maturity

3 years

3 years

Coupon rate

10%

6%

Yield to maturity

10.65%

10.75%

Price

98.40

88.34

 

Spot Interest Rates

Term (Years)

Spot Rates (Zero-Coupon)

1

5%

2

8

3

11

Reference no: EM13574788

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