3. An investor must choose between two bonds:

Bond A pays $90 annual interest and has a market value of $850. It has 10 years to maturity.

Bond B pays $80 annual interest and has a market value of $900. It has two years to maturity.

a. Compute the current yield on both bonds.

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, the approximate yield to maturity on Bond A is 11.54 percent. 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?