Harold Reese must choose between two bonds: Bond X pays $85 annual interest and has a market
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Question:
Harold Reese must choose between two bonds: Bond X pays $85 annual interest and has a market value of $780. It has 12 years to maturity. Bond Z pays $95 annual interest and has a market value of $800. It has five years to maturity. Assume the par value of the bonds is $1,000.
A. Compute the current yield on both bonds
Bond X 0.1089 or 10.89
Bond Z 0.1062 or 10.62
B. 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 X is 11.90 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity?
Related Book For
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
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