A high tax bracket investor is comparing 2 bond issues for possible inclusion in her portfolio. She expects market interest rates to be declining slowly but steadily over the foreseeable future. Bond A is a 6% ten-year Aaa-rated bond selling at $750.76. Bond B is an 8% ten-year Aaa-rated bond selling at $875.38.
a) What is the yield to maturity for each bond, assuming semi-annual payment of coupons?
b) Which would you recommend, based on the investor's expectations about future interest rates?
