EBK FOUNDATIONS OF FINANCIAL MANAGEMENT
EBK FOUNDATIONS OF FINANCIAL MANAGEMENT
17th Edition
ISBN: 9781260464900
Author: BLOCK
Publisher: MCGRAW-HILL LEARNING SOLN.(CC)
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Chapter 16, Problem 3P

Assume the par value of the bonds in the following problems is $1,000 unless otherwise specified.

Harold Reese must choose between two bonds: Bond X pays $95 annual interest and has a market value of $900 . It has 10 years to maturity. Bond Z pays $95 annual interest and has a market value of $920 . It has two years to maturity.

a. Compute the current yield on both bonds.

b. Which bond should he 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 yield to maturity on Bond X is 11.21 percent. What is the yield to maturity on Bond Z?

d. Has your answer changed between parts b and c of this question?

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EBK FOUNDATIONS OF FINANCIAL MANAGEMENT

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