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Question: An investor must choose between two bonds: Bond A pays $92 annual interest and has a market value of $875. It has 10 years to maturity. Bond B pays $82 annual interest and has a market value of $900. It has two years to maturity.

a. Compute the current yield on both bonds.

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

c. 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 A is 11.30 percent. What is the approximate yield to maturity on Bond B?

d. Has your answer changed between parts b and c of this question in terms of which bond to select?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92597026

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