For which bond is the current yield a good measure of the interest rate? Why? 

 Which bond should be the least sensitive to changes in interest rates? Why?  

Bond 1: Selling price:

 

[$7.50 * (1 - (1.0742)^(-24))] / 0.0742 + ($100 / (1.0742)^24) = $ 114.55.

Current Yield: $7.50 / $114.55 = 6.54%

Bond 2: Selling price:

[$7.50 * (1 - (1.0561)^(-5))] / 0.0561 + ($100 / (1.0561)^5) = $108.85

Current Yield: $7.50 / $108.85 = $6.89

Bond 3: Selling Price:

[$9.375 * (1 - (1.0710)^(-14))] / 0.0710 + ($100 / (1.0710)^14) = $135.29

Current Yield: $9.375 / $135.29 = 6.92% 

Answer rating: 100% (QA)

Bond with Good Current Yield Measure Bond 2 The current yield is a good measure of the interest rate ... View the full answer