onsider the following pair of bonds which are alike except for the characteristics listed.   Bond A  Bond B Coupon rate  4%  0% Bond rating  AAA  BBB Convertible  Yes  No Discuss which bond should have the higher yield to maturity.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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(a) Consider the following pair of bonds which are alike except for the characteristics listed.

  Bond A  Bond B
Coupon rate  4%  0%
Bond rating  AAA  BBB
Convertible  Yes  No


Discuss which bond should have the higher yield to maturity.


(b)

Company A is a fast food restaurant selling Ramen.
Company B is a manufacturer of beauty products.
The operating characteristics of a company is shown below:
Cash cycle = -10 days
Suppliers sell their goods to the company on a net 30 days basis

Appraise which of the companies, A or B, comes closest to the operating characteristics described above.

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