Explore BrainMass

Explore BrainMass

    Bond yields and market value

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Choosing between bonds

    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?

    © BrainMass Inc. brainmass.com June 4, 2020, 2:39 am ad1c9bdddf
    https://brainmass.com/business/bond-valuation/bond-yields-and-market-value-471867
    $2.19

    ADVERTISEMENT