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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 $96 annual interest and has a market value of $955. It has 12 years to maturity.

Bond Z pays $88 annual interest and has a market value of $940. It has four years to maturity.

Assume the par value of the bonds is $1,000.

Required -

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 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 10.25 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: EM133034345

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