Exhibit A

You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7 percent coupon, matures in two years, has a yield to maturity of 8 percent, and a face value of $1,000. Bond B pays an annual 8 percent coupon, matures in three years, has a yield to maturity of 9 percent, and a face value of $1,000.

Refer to Exhibit A. and determine the price of Bond A.

Select one:

a. $1,018.08

b. $982.17

c. $975.62

d. $990.57

e. $1,009.50