Answer: A

Response:

Bond A: $1,150 = $50 {[1 – 1/(1 + R)50 ]/ R} + 1,000 / (1 + R)50; R = 4.27%;

Bond B: price = $40 [(1 – 1/1.042750) / .0427] + 1,000 / 1.042750 = $944.58

First, compute the YTM for bond A, thusly:

1000 FV, 25×2=N, 50 PMT, -1,150 PV, CPT I/Y = YTM = 4.27. Then compute PV of bond B:

1000 FV, 40 PMT, 25×2= N, 4.27 I/Y, CPT PV = -944.58