Masters Corp. issues two bonds with 20-year maturities. Both bonds are callable at $1,080. The first bond is issued at a deep discount with a coupon rate of 6% and a price of $460 to yield 14.4%. The second bond is issued at par value with a coupon rate of 5.75%.

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 5.75%
	Bond with a coupon rate 6%