Harold Reese must choose Bond X pays $82 annual interest and bas a market vaue o

Question

Harold Reese must choose Bond X pays $82 annual interest and bas a market vaue or $710, it has 10 years to matunty Bond Z pays $88 annual interest and has a market value ot $750. It has ive years to maturity Compute the current yiekd on both bonds (Do not round intermediate calcuiations input your answers as a percent rounded to 2 decimal places. a. Bond X Bond z 1155 % 2 Bond Z O Bond X c. A drawback of current yield is that it does not consider the total ite of the bond. For esxampe, the percent What is the approximate yield to maturity on approximate yield to maturty on Bond x s 1344 Bond z? The exact yield to maturity? (Use the approx imation tormula to compute the approximate round intermediate calculations. Input your answers as a percent rounded to 2 decimal places) Approximate yield to O Yes O No

Explanation / Answer

c)

d)

No, Still better bond is Bond Z.

1 Face value (F) $                             1,000 2 Coupon rate per period 8.80% 1*2 Interest per period (C ) $                             88.00 Bond price (P) $                           750.00 4 Number of years to maturity (N)                                          5 Approximate yield to maturity [C+(F-P)/N]/[(F+P)/2] Approximate yield to maturity 15.77%

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