Question: 1. Two bonds are almost exactly the same (same coupon rate, face value, maturity, frequency of payments) but have different credit ratings. Bond A is

1. Two bonds are almost exactly the same (same coupon rate, face value, maturity, frequency of payments) but have different credit ratings. Bond A is rated AAA and bond B is rated BBB.

a) Which bond will have the higher price?

b) Which bond will have the higher yield to maturity?

c) What type of risk does the credit rating measure?

2. Two bonds are almost exactly the same (same coupon rate, face value, maturity, credit rating, frequency of payments) but Bond X is callable and Bond Y is convertible.

a) Which bond will have the higher price?

b) Which bond will have the higher yield to maturity?

c) Differentiate between callable and convertible bonds.

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