# Harold Reese must choose between two bonds; compute yields

Harold Reese must choose between two bonds: Bond X pays $95 annual interest and has a market value of $900. It has 10 years to maturity.

Bond Z pays $95 annual interest and has a market value of $920. It has two years to maturity.

a. Compute the current yield on both bonds.

b. Which bond should he select based on your answer in part a?

c. A drawback of current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond X is 11.17 percent. What is the approximate yield to maturity on Bond Z?

d. Has your answer changed between parts b and c of this question?

https://brainmass.com/business/bond-valuation/finance-harold-reese-must-choose-between-two-bonds-compute-yields-273491

#### Solution Preview

a. Compute the current yield on both bonds.

Bond X = 95/900=10.56

Bond Z = 95/920=10.33

b. Which bond should he select based on your answer in part a?

Bond X is selected based on ...

#### Solution Summary

The solution examines Harold Reese choosing between two bonds. Yields are computed.