Harold Reese must choose between two bonds Bond X pays $60 annual interest and has a market value of $835. It has 12 years to maturity. Bond Y pays $50 annual interest and has a market value of $860. It has seven years to maturity. Assume the par value of the bonds is $1,000. a. Compute the current yield on both bonds. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Current Yield Bond X Bond Z 7.19 % 5.81% b. Which bond should he select based on your answers to part a? O 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 yield to maturity on Bond X is 8.19 percent. What is the yield to maturity on Bond Y? Note: Use the approximation formula to compute the approximate Tield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Approximate yield to maturity Exact yield to maturity % 8.00 %
Harold Reese must choose between two bonds Bond X pays $60 annual interest and has a market value of $835. It has 12 years to maturity. Bond Y pays $50 annual interest and has a market value of $860. It has seven years to maturity. Assume the par value of the bonds is $1,000. a. Compute the current yield on both bonds. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Current Yield Bond X Bond Z 7.19 % 5.81% b. Which bond should he select based on your answers to part a? O 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 yield to maturity on Bond X is 8.19 percent. What is the yield to maturity on Bond Y? Note: Use the approximation formula to compute the approximate Tield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Approximate yield to maturity Exact yield to maturity % 8.00 %
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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am. 113.
Transcribed Image Text:Harold Reese must choose between two bonds
Bond X pays $60 annual interest and has a market value of $835. It has 12 years to maturity.
Bond Y pays $50 annual interest and has a market value of $860. It has seven years to maturity.
Assume the par value of the bonds is $1,000.
a. Compute the current yield on both bonds.
Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.
Current Yield
Bond X
Bond Z
7.19 %
5.81%
b. Which bond should he select based on your answers to part a?
O 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 yield to maturity on Bond X is 8.19
percent. What is the yield to maturity on Bond Y?
Note: Use the approximation formula to compute the approximate Tield to maturity and use the calculator method to compute
the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal
places.
Approximate yield to maturity
Exact yield to maturity
%
8.00 %
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