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What is the approximate yield to maturity on Bond B

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Reference no: EM132572554

Question - An investor must choose between two bonds:

Bond A pays $90 annual interest and has a market value of $815. It has 15 years to maturity.

Bond B pays $81 annual interest and has a market value of $700. It has eight years to maturity.

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

Required -

a. Compute the current yield on both bonds.

b. Which bond should she select based on your answers to 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 A is 11.51 percent. What is the approximate yield to maturity on Bond B? The exact yield to maturity?

d. Has your answer changed between parts b and c of this question in terms of which bond to select?

Reference no: EM132572554

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