Two types of bonds are offered to you for bond investment considerations: P10,000, 5-year, 10% p.a. Debenture bond issued by Yoo Hoo corp. The interest payable twice a year. The bond has four years remaining term and is offered to you at 98-1/2.  P5,000, 10-year, 10% p.a. Mortgage bond issued by Khoo Coo, Inc. Interest is paid annually. The bond still has 7 years remaining life before its maturity. It is offered to you by a friend at 101-3/4. It has been your policy that your desired rate of return for unsecured investment should be 12% p.a, and for secured investment will earn a minimum of 8% p.a. 1. Based on the above information, compute the exact yield to maturity (YTM) of the two bonds offered. 2. Which bond you wish to invest? Explain thoroughly why.

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
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Two types of bonds are offered to you for bond investment considerations:

  • P10,000, 5-year, 10% p.a. Debenture bond issued by Yoo Hoo corp. The interest payable twice a year. The bond has four years remaining term and is offered to you at 98-1/2. 
  • P5,000, 10-year, 10% p.a. Mortgage bond issued by Khoo Coo, Inc. Interest is paid annually. The bond still has 7 years remaining life before its maturity. It is offered to you by a friend at 101-3/4.
  • It has been your policy that your desired rate of return for unsecured investment should be 12% p.a, and for secured investment will earn a minimum of 8% p.a.

1. Based on the above information, compute the exact yield to maturity (YTM) of the two bonds offered.

2. Which bond you wish to invest? Explain thoroughly why. 

 

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