Which of these three bonds offers the highest current yield? Which one has the h
ID: 2713825 • Letter: W
Question
Which of these three bonds offers the highest current yield? Which one has the highest yield to maturity?a. A 6%, 20-year bond quoted at 97.750 b. A 4%, 15-year bond quoted at 64.625 c. A 5.25%, 18-year bond quoted at 54.000 Which of these three bonds offers the highest current yield? Which one has the highest yield to maturity?
a. A 6%, 20-year bond quoted at 97.750 b. A 4%, 15-year bond quoted at 64.625 c. A 5.25%, 18-year bond quoted at 54.000 Which of these three bonds offers the highest current yield? Which one has the highest yield to maturity?
a. A 6%, 20-year bond quoted at 97.750 b. A 4%, 15-year bond quoted at 64.625 c. A 5.25%, 18-year bond quoted at 54.000
Explanation / Answer
Bond a. Bond Par value 100 Bond Price 97.75 Years to maturity 20 Annual Interest 6 Current Yield = Annual Interest /Current Price 6.14% Yield to Maturity = [Annual Interest +(Par Value-Bond Price)/Years to Maturity] / [Par value+ Bond Price]/2 =[6+(100-97.75)/20]/(197.75)/2 6.18% So YTM = 6.18% Bond b. Bond Par value 100 Bond Price 64.6250 Years to maturity 15 Annual Interest 4 Current Yield = Annual Interest /Current Price 6.19% Yield to Maturity = [Annual Interest +(Par Value-Bond Price)/Years to Maturity] / [Par value+ Bond Price]/2 =[4+(100-64.625)/15]/(164.625)/2 7.71% So YTM = 7.71% Bond c. Bond Par value 100 Bond Price 54.0000 Years to maturity 18 Annual Interest 5.25 Current Yield = Annual Interest /Current Price 9.72% Yield to Maturity = [Annual Interest +(Par Value-Bond Price)/Years to Maturity] / [Par value+ Bond Price]/2 =[5.25+(100-54)/18]/(154)/2 10.14% So YTM = 10.14% So Bond c has highest current yield and YTM.
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