Masters Corp. issues two bonds with 20-year maturities. Both bonds are callable at $1,050. The first bond is issued at a deep discount with a coupon rate of 7% to yield 16.0%. The second bond is issued at par value with a coupon rate of 18.00% 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 7%

• Bond with a coupon rate 18.00%