Harold Reese must choose between two bonds:   Bond X pays $70 annual interest and has a market value of $845. It has 10 years to maturity. Bond Z pays $60 annual interest and has a market value of $870. It has five years to maturity.   Assume the par value of the bonds is $1,000.   a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)   current yield% Bond x   Bond z           b. Which bond should he select based on your answers to part a?   multiple choice 1 Bond X Bond Z     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 9.43 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use a calculator or Excel to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)                               % Approximate yield to maturity   Exact yield to maturity           d. Has your answer changed between parts b and c of this question?   multiple choice 2 Yes No

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Harold Reese must choose between two bonds:

 

Bond X pays $70 annual interest and has a market value of $845. It has 10 years to maturity.
Bond Z pays $60 annual interest and has a market value of $870. It has five years to maturity.

 

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

 

a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)

  current yield%
Bond x  
Bond z  

 

 

 

 

b. Which bond should he select based on your answers to part a?

 

multiple choice 1

  • Bond X
  • Bond Z

 

 

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 9.43 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use a calculator or Excel to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)

                              %
Approximate yield to maturity  
Exact yield to maturity  

 

 

 

 

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

 

multiple choice 2

  • Yes
  • No

 

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