3.1 Bonds A and B are two straight yen-denominated Eurobonds, with the same maturity of 4 years and the same YTM of 9%.

Bond A has an annual coupon of 11% and is accordingly priced at 106.48%.

Bond B has an annual coupon of 7% and is accordingly priced at 93.52%

1. Compute the simple yield for each of these bonds, as reported sometimes by financial institutions in Japan. ( 3 marks)
2. What does your answer to part (1)indicate about the potential biases in using the simple yield? ( 2 marks)