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german
3 years ago
5

Which $1,000 bond has the higher yield to maturity, a twenty-years bond selling for $800 with a current yield of 15% or a one-ye

ar bond selling for $800 with a current yield of 5%?
Business
1 answer:
lesantik [10]3 years ago
3 0

Answer:

30%

Explanation:

The computation is shown below:

Here we considered a long term bond that time period should be 15 years or more

Now as we know that

Current yield is

= Current payment ÷ Pb

5% = Current payment ÷ $800

The Current payment is $40

Now the yield to maturity is

-$800 = $50 ÷  (1 + i) + $1,000 ÷ (1 + i) + $1,040 ÷ (1 + i)

So, i = 30%

The same is to be chosen

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