An investor must choose between two bonds:
Bond A pays $100 annual interest and has a market value of $850. It has 12 years to maturity.
Bond B pays $106 annual interest and has a market value of $920. It has 4 years to maturity.
Assume the par value of the bonds is $1000 a. compute the current yield on both bonds (%)
Bond B b. Which bond should he select based on your answer to part a? c. A drawback of current yield is that it does not consider the total life of the bond. For example he approximate yield to maturity on Bond
A is 12.36%. What is the approximate yield to maturity on Bond B? (%) d. Has your answer changed between parts b and c of this question in terms of which bond to select? (yes or no)