Assume you are evaluating whether to purchase the following $1,000 face value bonds:
Co. X bond with a 6% coupon rate that matures in 9 years.
Co. Y bond with an 11% coupon rate that matures in 7 years.
Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid annually.
Value these bonds assuming a market rate on similar risk bonds is 7% and interest is paid semi-annually.
Value these bonds assuming a market rate on similar risk bonds is 12% and interest is paid annually.
Assuming both bonds were issued at the same time, why would the Co. Y bond pay a higher coupon rate?