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If you are planning on doing a Substitution swap on the following two bonds, what transaction should you create? a 20-year maturity, 6% coupon Toyota

If you are planning on doing a Substitution swap on the following two bonds, what transaction should you create?

  • a 20-year maturity, 6% coupon Toyota bond that is trading at 6.50% YTM
  • a 20-year 6% coupon Honda bond with the same time to maturity is trading at 6.05% YTM

Group of answer choices

A. sell both the Toyota bond and the Honda bond

B. sell the Toyota bond and buy the Honda bond

C. sell the Honda bond and buy the Toyota bond and

D. buy both the Honda bond and the Toyota bond

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