The investments of Harry and Belinda have done well through the years. While the cash portion of their portfolio has risen to $16,000, it is earning a minuscule 1 percent in a money market account; thus they are seeking greater yields with bond investments. Examine the following table, which identifies eight investment alternatives, and then respond to the questions that follow. The coupon rates vary because the issue dates range widely and market prices are above par because older bonds paid higher interest than today€™s issues.

(a) What is the current yield of each investment alternative? Use Equation (14.5) or visit the Garman/Forgue companion website. (Write your responses in the proper column in the table.)
(b) What is the yield to maturity for each investment alternative? (Write your responses in the proper column in the table.) You may calculate the YTMs by using Equation (14.6) or by visiting the Garman/Forgue companion website.
(c) Knowing that the Johnsons follow a moderate investment philosophy, which one of the six corporate bonds would you recommend? Why?
(d) Given that the Johnsons are in the 25 percent federal marginal tax rate, what is the equivalent taxable yield for the municipal bond choice? Should they invest in your recommendation in part (c) or in the municipal bond? Why? You may calculate the equivalent taxable yield using the information on page 129.
(e) Which three of the eight alternatives would you recommend as a group so that the Johnsons would have some diversification protection for their $16,000? Why do you suggest thatcombination?

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Bond Coupon Rate Years Until Moody's Market Current Name of Issue Denomination Pct Maturity Rating Corporate ABC $1000 Corporate DEF Corporate GHI Corporate JKL Corporate MNO 1000 Corporate PQR Treasury note Municipal bond 1000 Price Yield YTM $1400 5.5 5.9 4.8 4 20 12 Aa Aa Baa Aaa 1550 1250 1500 1260 1200 1600 1200 1000 1000 1000 1000 1000 5.3 2.2 Aa