Which $1,000 bond has the higher yield to maturity, a twenty-year bond selling for $800 with a current yield of 15% or a one-year bond selling for $800 with a current yield of 5%?

Respuesta :

Answer:

Bond A is far better.

Explanation:

Assuming you're spending $800 on every bond.

After twenty years,

Bond A will be:

⇒  [tex]800\times 1.15^{20}+200[/tex]

⇒  [tex]13,293[/tex]

Bond B will be:

⇒  [tex]800\times 1.05^{20}[/tex]

⇒  [tex]2,123[/tex]

So that the above is the appropriate answer.

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