Question: You have been offered a choice between two bonds, A and B, with the following characteristics: Bond A: Face value: $1,000 Coupon rate: 6% Maturity:

You have been offered a choice between two bonds, A and B, with the following characteristics:

Bond A:

  • Face value: $1,000
  • Coupon rate: 6%
  • Maturity: 10 years
  • Yield to maturity: 4%

Bond B:

  • Face value: $1,000
  • Coupon rate: 8%
  • Maturity: 5 years
  • Yield to maturity: 6%

Which bond is a better investment, and why?

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