Bill Board must choose between two bonds: Bond A pays $90 annual interest with semiannual payment and has a market value of $840. It has 12 years to maturity Bond B pays $80 annual interest with semiannual payment and has a market value of $890. It has 3 years to maturity Assume the par value of the bonds is $1,000 a. Compute the current yield on both bonds. (Round the final answers to 2 decimal places) Current yield Bond A Bond B b. Which bond should he select based on the answer to part a? O Bond A O Bond B c. A drawback of current yield is that it does not consider the total life of the bond. What is the yield to maturity on these bonds? ( 2 decimal places)
Bill Board must choose between two bonds: Bond A pays $90 annual interest with semiannual payment and has a market value of $840. It has 12 years to maturity Bond B pays $80 annual interest with semiannual payment and has a market value of $890. It has 3 years to maturity Assume the par value of the bonds is $1,000 a. Compute the current yield on both bonds. (Round the final answers to 2 decimal places) Current yield Bond A Bond B b. Which bond should he select based on the answer to part a? O Bond A O Bond B c. A drawback of current yield is that it does not consider the total life of the bond. What is the yield to maturity on these bonds? ( 2 decimal places)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Bill Board must choose between two bonds:
Bond A pays $90 annual interest with semiannual payment and has a market value of $840. It has 12 years to maturity
Bond B pays $80 annual interest with semiannual payment and has a market value of $890. It has 3 years to maturity
Assume the par value of the bonds is $1,000
a. Compute the current yield on both bonds. (Round the final answers to 2 decimal places)
Current yield
Bond A
Bond B
b. Which bond should he select based on the answer to part a?
O Bond A
O Bond B
C.A drawback of current yield is that it does not consider the total life of the bond. What is the yield to maturity on these bonds? (Do
not round intermediate calculations. Round the final answers to 2 decimal places)
Yield to maturity
Bond A
Bond B
d. Has the answer changed between parts band c of this question?
O Yes
O NO
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