Mrs. Dove is considering whether to buy bonds issued by a UK company which has a credit rating of BB. These bonds have a coupon of 6% payable semi-annually, are trading cum-interest at £127.30 per £100 nominal and are redeemable at par in 15 years. The next interest payment is due to be made tomorrow.

Required:

a) Calculate the current yield to maturity of the corporate bonds.

b) Clearly explain to Mrs. Dove what is meant by the yield to maturity of a corporate bond and the primary factors which affect it.