Question
Harold Reese must choose between two bonds: Bond X pays $82 annual interest and has a market value of $710. It has 10 years to
Harold Reese must choose between two bonds:
Bond X pays $82 annual interest and has a market value of $710. It has 10 years to maturity. Bond Z pays $88 annual interest and has a market value of $750. It has five years to maturity.
Assume the par value of the bonds is $1,000.
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 13.44 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity?
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Bond Markets Analysis And Strategies
Authors: Frank J. Fabozzi, Francesco A. Fabozzi
10th Edition
026204627X, 978-0253337535
