# An Investor Must Choose Between Two Bonds

MUST SHOW ALL WORK. An investor must choose between two bonds: Bond A pays \$72 annual interest and has a market value of \$925. It has 10 years to maturity. Bond B pays \$62 annual interest and has a market value of \$910. It has two 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 she 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 A is 8. 33 percent. What is the yield to maturity on Bond B?d. Has your answer changed between parts b and c of this question in terms of which bond to select?

# An Investor Must Choose Between Two Bonds

MUST SHOW ALL WORK. An investor must choose between two bonds: Bond A pays \$72 annual interest and has a market value of \$925. It has 10 years to maturity. Bond B pays \$62 annual interest and has a market value of \$910. It has two 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 she 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 A is 8. 33 percent. What is the yield to maturity on Bond B?d. Has your answer changed between parts b and c of this question in terms of which bond to select?

# An investor must choose between two bonds

Question
MUST SHOW ALL WORK.

An investor must choose between two bonds: Bond A pays \$72 annual interest and has a market value of \$925. It has 10 years to maturity. Bond B pays \$62 annual interest and has a market value of \$910. It has two 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 she 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 A is 8.33 percent. What is the yield to maturity on Bond B?

d. Has your answer changed between parts b and c of this question in terms of which bond to select?