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Which bond has a higher yield

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Reference no: EM132701709

Problem 1: Firm AA and firm BB are identical except for their bond issuance. Firm AA issued bonds with maturity of 2 years and coupon of 5% without covenants. While Firm BB has issued bonds with the same maturity and coupon payments as Firm AA but with covenants that preclude the manager to engage in empire building. Which bond has a higher yield?

a) We cannot know

b) They have the same yield

c) Firm AA's bond

d) Firm BB's bond

Reference no: EM132701709

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