# Bond Yeilds

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,

...

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