An analyst is comparing two bonds, each with a 2-year maturity and a face amount of $100,000. Although both bonds have a yield to maturity of 7.0%, Bond A has a coupon of 6% and Bond B has a coupon of 8%. Assuming that both bonds have annual interest payments, the prices of both Bond A and Bond B are closest to

Answer (B) is correct. The price of the bond is equal to the sum of present value of the face value of the bond and the present value of the interest payments. Thus, the price of Bond A is $98,148 [($100,000 × .873 PV factor) + ($6,000 × 1.808 PV factor)]. The price of Bond B is $101,764 [($100,000 × .873 PV factor) + ($8,000 × 1.808 PV factor)].