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    Bond Yeilds

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    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?

    Bond A --- 92/875=10.5%
    Bond B ---82/900 = 9.1%

    b. Which bond should be select based on your answer to part a? Select Bond A due to the higher yield

    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?

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    Solution Preview

    Answer is with the attachment.

    (c) Answer:

    As we know that,

    Here, For bond B,
    ...

    Solution Summary

    This solution is comprised of questions from Bond Yeilds.

    $2.19

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