Ms. Alumm is the portfolio manager for a large insurance company. She is considering investing $1million to purchase some bonds of Patriot Enterprises, Inc.

All of Patriot's bonds have market prices that imply a yield to maturity of 8% bond equivalent yield (that is 4% every 6-month period). Each Patriot bond is described here, based on a $1,000 face value(par value), which is the promised payment at maturity.

- Bond A matures in five years and pays a 9% coupon yield ($45 every 6 months on a $1,000 facevalue bond).

- Bond B matures in ten years, pays an 8% coupon yield ($40 seminannual payments), and is beingoffered at par.

- Bond C is a zero-coupon bond that pays no explicit interest, but will pay the face amount of$1,000 per bond at maturity in ten years.A.

A) at what price should each bond currently sell?

As an alternative, Ms. Alumm has been invited to invest $1 million in a 10-year Eurobond of a secondfirm, Nationaliste, S.A. Nationaliste bonds are similar in risk to Bond B above: they promise an 8%coupon yield for 10 years, but coupons are paid annually, not semiannually. The Nationaliste bonds are priced at a 1% discount from par, or $990 per $1,000 face value.

B.What yield to maturity is implied by the Nationaliste Eurobond? Compare this yield to the 8% bond-equivalent yield of the Patriot semiannual coupon bond (Bond B) above. In which bond should Ms. Alumm invest?