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Compute the current yield on both bonds

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Reference no: EM132418988

Bill Board must choose between two bonds:

Bond A pays $70 annual interest with semiannual payment and has a market value of $800. It has 8 years to maturity.

Bond B pays $60 annual interest with semiannual payment and has a market value of $850. It has 1 years to maturity.

Assume the par value of the bonds is $1,000.

a. Compute the current yield on both bonds. (Round the final answers to 2 decimal places.)

    Current yield  Bond A %    Bond B %  

b. Which bond should he select based on the answer to part a?

  • Bond A
  • Bond B

c. A drawback of current yield is that it does not consider the total life of the bond. What is the yield to maturity on these bonds? (Do not round intermediate calculations. Round the final answers to 2 decimal places.)

 Yield to maturity   Bond A %    Bond B %  

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

  • Yes
  • No

Reference no: EM132418988

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