You are considering investing in one of the three following default-risk free bonds, and holding this bond until maturity. The three bonds you are considering all mature in exactly three years, pay annual coupons, have face values of $100, and have the following current market prices and coupon rates:

• Bond A: Currently trading at $105.60 with a coupon rate of 6%
• Bond B: Currently trading at $109.89 with a coupon rate of 7%
• Bond C: Currently trading at $100 with a coupon rate of 5%

If you want to hold the bond that delivers the highest annualized return (assuming that you re-invest all coupons from each bond at the relevant yield-to-maturity), then which of the three bonds should you buy?

a) Bond C

b) Bond A

c) Indifferent between Bond A and Bond C

d) Bond B

e) There is not enough information provided to answer this question