Harold Reese must choose between two bonds: Bond X pays $70 annual interest and has a market value of $845. It has 10 years to maturity. Bond Z pays $60 annual interest and has a market value of $870. It has five years to maturity. Assume the par value of the bonds is $1,000. a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Current yield % Bond X Bond Z b. Which bond should he select based on your answers to part a? multiple choice 1 Bond X Bond Z 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 X is 9.43 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use a calculator or Excel to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) approximately yield to maturity % exact yield to maturity % d. Has your answer changed between parts b and c of this question? multiple choice 2 Yes Correct
Harold Reese must choose between two bonds:
Bond X pays $70 annual interest and has a market value of $845. It has 10 years to maturity.
Bond Z pays $60 annual interest and has a market value of $870. It has five years to maturity.
Assume the par value of the bonds is $1,000.
a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)
| Current yield | % | |
| Bond X | ||
| Bond Z |
b. Which bond should he select based on your answers to part a?
multiple choice 1
-
Bond X
-
Bond Z
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 X is 9.43 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use a calculator or Excel to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)
| approximately yield to maturity | % | |
| exact yield to maturity | % |
d. Has your answer changed between parts b and c of this question?
multiple choice 2
-
Yes Correct
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