Two Grandparents Are Considering Purchasing a Baby Bond for Their

Essay

Two grandparents are considering purchasing a baby bond for their first grandson. They are deciding between two bonds with the same face value of $42,000. Both bonds are offered at the same price of $37,000. Bond A has interest of 2.5% per year, payable quarterly, and matures in 6 years. Bond B, issued 2 years ago, has interest of 2.75% per year, payable semiannually, and a 8- years maturity date. If the current market rate is 3% per year, compounded quarterly, which bond should be purchased?