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Assume that an investor is looking at two​ bonds: Bond A is a 20​-year, 9% ​(semiannual pay) bond that is priced to yield 10.5%. Bond B is a 20​-year, 8​% ​(annual pay) bond that is priced to yield 7.5​%. Both bonds carry 5​-year call deferments and call prices​ (in 5 ​years) of ​$1,050. Which bond has the higher current yield?

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Answer

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Explanation  

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Parrain

Based on the characteristics of Bonds A and B, the Bond with the higher current yield is Bond A.

Why does Bond A have a higher yield?

The bond with the higher yield will be the one that is priced lower than the other bond.

Bond A has a coupon rate that is lower than the yield which means that it is selling for less than $1,000 because it is a discount bond.

Bond B has a coupon rate of 8% which is more than the yield of 7.5%. It is therefore selling at more than $1,000 because it is a premium bond.

When the coupon amounts are divided by the current price, the lower price of Bond A will lead to it having a higher current yield.

Find out more on discount and premium bonds at https://brainly.com/question/13987236.

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