Which bond is worth to be invested and why

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Reference no: EM132210839

Question - BB Company has two different bonds currently outstanding. Bond A with a 8% coupon rate and annual coupon has a face value of $1000, 3 years to maturity. Bond B has a face value of $800 but mature in 5 years, and the bond pays $60 each year. Currently, the market prices of bond A and bond B are $1020 and $860, respectively.

Required:

1) If the return rate on similar-risk bonds is 6%, which bond is worth to be invested? Why?

2) In the future, if the interest rate is expected to drop, which one has more interest rate risk? Why?

Reference no: EM132210839

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