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Assume the par value of the bonds in the following problems is $1,000 unless otherwise specified. 1) Harold Reese must choose between two bonds: Bond

Assume the par value of the bonds in the following problems is $1,000 unless otherwise specified.

1) Harold Reese must choose between two bonds: Bond X pays $95 annual interest and has a market value of $900. It has 10 years to maturity. Bond Z pays $95 annual interest and has a market value of $920. 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?

2) An investor must choose between two bonds: Bond A pays $72 annual interest and has a market value of $925. It has 10 years to maturity. Bond B pays $62 annual interest and has a market value of $910. It has two years to maturity. Assume the par value of the bonds is $1,000.

a.

Compute the current yield on both bonds.

b.

Which bond should she select based on your answer to part a?

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