Masters Corp. issues two bonds with 18-year maturities. Both bonds are callable at $1,040. The first bond is issued at a deep discount with a coupon rate of 8% and a price of $630 to yield 13.7%. The second bond is issued at par value with a coupon rate of 9.15%.

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

Yield to maturity

%

b.

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

	Bond with a coupon rate 9.15%
	Bond with a coupon rate 8%