Ms. Naipaul is the portfolio manager for a large Trinidadian insurance company. She is considering investing $1 million to purchase some bonds of Petro Enterprises, Inc. All of Petros bonds have market prices that imply a yield to maturity of 8% bond equivalent yield (that is 4% every 6-month period). Each Petro 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 face value bond).

Bond B matures in ten years, pays an 8% coupon yield ($40 semiannual payments), and is being offered 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.

Ms. Naipaul is the portfolio manager for a large Trinidadian insurance company. She is considering investing $1 million to purchase some bonds of Petro Enterprises, Inc. All of Petros bonds have market prices that imply a yield to maturity of 8% bond equivalent yield (that is 4% every 6-month period). Each Petro 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 face value bond).

Bond B matures in ten years, pays an 8% coupon yield ($40 semiannual payments), and is being offered 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.