The tables below show, respectively, the characteristics of two annual-coupon bonds from the same issuer with the same priority in the event of default, as well as spot interest rates on zerocoupon bonds. Neither coupon bond’s price is consistent with these spot rates. Using the information in these tables, recommend either bond A or bond B for purchase. P-639 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