Which of the following bonds offers the highest current? yield? a. A 12.18?%, ?2

ID: 2620883 • Letter: W

Question

Which of the following bonds offers the highest current? yield?

a. A 12.18?%, ?20-year bond quoted at 95.057.

b. A 20.30?%, ?15-year bond quoted at 158.429.

c. A 6.09%, 18-year bond quoted at 47.529.

The current yield of the bond in part a is ____ %. ?(Round to two decimal? places.)

The current yield of the bond in part b is ____ %. (Round to two decimal? places.)

The current yield of the bond in part c is ____ %. (Round to two decimal? places.)

Which of the three bonds offers the highest current? yield????(Select the best answer? below.)

A. The bond in part b has the highest current yield because it has the highest coupon rate and the highest market value.

B. All of the above bonds have a current yield of approximately 12.81%.

C. The bond in part a has the highest current yield because it is held for the longest period of time.

Explanation / Answer

Working:

PMT = Payment = Coupon rate x Face Value =

$121.80

$203.00

$60.90

PV = Bond Value = Quoted price/100 x Face Value

$950.570

$1,584.290

$475.290

Current yield = Coupon / Bond Value

12.81%

Answer:

The current yield of the bond in part a is 12.81% %. ?(Round to two decimal? places.)

The current yield of the bond in part b is 12.81% % ?(Round to two decimal? places.)

The current yield of the bond in part c is 12.81% % ?(Round to two decimal? places.)