Fincorp issues two bonds with 15-year maturities. Both bonds are callable at $1,050. The first bond is issued at a deep discount with a coupon rate of 6% and a price of $560 to yield 12.9%. The second bond is issued at par value with a coupon rate of 13.25%

Required:

a. What is the yield to maturity of the par bond? (Round your answer to 2 decimal places.)

b. If you expect rates to fall substantially in the next two years, which bond would you prefer to hold?

multiple choice

• Bond with a coupon rate 13.25%

• Bond with a coupon rate 6%