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Compute the current yield on both bonds

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Question - 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.

b. Which bond should he select based on your answers to part a?

c. A drawback of the 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?

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

Reference no: EM133033204

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