An investor must choose between two $1,000 par value bonds: Bond A pays $80 annual interest and

Question:

An investor must choose between two $1,000 par value bonds:

Bond A pays $80 annual interest and has a market value of $800. It has 12 years to maturity

Bond B pays $85 annual interest and has a market value of $880. It has 4 years to maturity.

a. Compute the current yield on both bonds.

b. Which bond should he select based on your answer to part a?

c. Compute the approximate yield to maturity on both bonds

d. Has your answer changed in terms of which bond to select?

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...