Compute the current yield on both bonds


Problem:

An investor must choose between two bonds:

Bond A pays $92 annual interest and has a market value of $875. It has 10 years maturity. Bond B pays $82 annual interest and has a market value of $900. It has two years to maturity.

1) Compute the current yield on both bonds?

2) Which bond should be select based on your answer to part (1)?

3) A draw back of current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond A is 11.30 percent. What is the approximate yield to maturity on Bond B?

4) Has your answer change between parts b and c of this question in terms of which bond to select?

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Finance Basics: Compute the current yield on both bonds
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