As of March 23, 2017, the yield to maturity on one year U.S. Treasury Bills is...

As of March 23, 2017, the yield to maturity on one year U.S. Treasury Bills is just 0.96%. You mention to your broker your frustration at only earning such a low interest rate. The broker responds by informing you that he can get you into bonds issued by ShadyVentures Inc. that promise much better returns. In particular, the ShadyVenture Bonds pay 6.5% annual coupon interest (on a semi-annual basis, as is typical) on face value of $1000 each, are scheduled to mature on March 23, 2037, and are rated B by both Moodys and S&P. He can get you into these bonds for a price of $920 per bond. (a) What is the yield-to-maturity on the ShadyVenture Bonds? (b) Unless your computations are far off base, you should verify that ShadyVenture bonds have a higher yield to maturity than U.S. Treasury Bills. Identify two reasons or risks that the ShadyVenture bonds might not be the better investment despite their higher yield.

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jeff jeffy answered 1 year ago

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