Question
In: Finance
An investor must choose between two bonds: Bond A pays $60 annual interest and has a...
An investor must choose between two bonds:
Bond A pays $60 annual interest and has a market value of $740.
It has 10 years to maturity.
Bond B pays $65 annual interest and has a market value of $830. It has nine years to maturity.
Assume the par value of the bonds is $1,000.
a. Compute the current yield on both bonds.
(Do not round intermediate calculations. Input your answers
as a percent rounded to 2 decimal places.)
b. Which bond should she select based on your
answers to part a?
| Bond A | |
| Bond B |
c. A drawback 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 10.19 percent. What is the
approximate yield to maturity on Bond B? The exact yield to
maturity? (Use the approximation formula to compute the
approximate yield to maturity and use the calculator method to
compute the exact yield to maturity. Do not round intermediate
calculations. Input your answers as a percent rounded to 2 decimal
places.)
d. Has your answer changed between parts
b and c of this question in terms of which bond
to select?
| No | |
| Yes |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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