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# Bond Evaluation

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4. An investor must choose between two bonds:
Bond A pays \$92 annual interest and has a market value of \$875. It has 10 years maturity. Bond B pays \$82 annual interest and has a market value of \$900. It has two years to maturity.

a. Compute the current yield on both bonds?

b. Which bond should be select based on your answer to part a?

c. A draw back of current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond A is 11.30 percent. What is the approximate yield to maturity on Bond B?

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

#### Solution Preview

a. Current Yield= Annual Interest/Price
For Bond A - Current Yield = 92/875 = 10.5%
Bond B - Current Yield = 82/900=9.1%

b. Based on current ...

#### Solution Summary

The solution explains how to choose between bonds.

\$2.19