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Village Investments Ltd. (VI) an investment management firm, have
requested that you, their senior analyst, review the bond information in the table
below:
RNM 10 Bond
RNM 6 Bond
Maturity
3 years
3 years
Coupon Rate
10%
6%
Coupon Payment
Annual
Annual
YTM
10.65%
10.75%
Price
$98.40
$88.34
Both bonds have the same issuer, same priority in an event of default and
spot interest rates. Note that neither bond's price is consistent with the spot
rates, shown in the table below:
Term
Spot Rates (Zero Coupon)
1 yr
5%
2 yr
8%
3 yr
11%
Using the information provided in the research tables, recommend either
RNM 10 Bond or RNM 6 Bond for purchase by the
company.
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