Harold Reese must choose between two bonds: Bond X pays $70 annual interest and has a market value of $845. It has 10 years to maturity. Bond Z pays $60 annual interest and has a market value of $870....

Harold Reese must choose between two bonds:

Bond X pays $70 annual interest and has a market value of $845. It has 10 years to maturity.
Bond Z pays $60 annual interest and has a market value of $870. It has five years to maturity.

Assume the par value of the bonds is $1,000.

a.Compute the current yield on both bonds.(Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)

b.Which bond should he select based on your answers to parta?

multiple choice 1

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  Bond X

  
  
  
  


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  Bond Z

  
  
  
  

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 X is 9.43 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity?(Use the approximation formula to compute the approximate yield to maturity and use a calculator or Excel to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)

d.Has your answer changed between partsb andc of this question?

multiple choice 2

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  Yes

  
  
  
  


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  No