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Determine the current market prices of the following $1,000 bonds if the comparable rate is 10% and answer the questions.
XY 5 ¼ percent, with interest paid annually for 20 years.
AB 14 percent, with interest paid annually for 20 years.
Which bond has a current yield that exceeds the yield to maturity? Which bond may you expect to be called? Why?
If CD, Inc. has a bond with a 5 ¼ percent coupon and a maturity of 20 years but which was lower rated, what would be its price relative to the XY, Inc. bond? Explain.



Part a.
Current Yield Yield to Maturity
XY bond AB bond XY bond AB bond
Rate 10% 14% Nper 20 20
Nper 20 20 PMT $60.00 $60
PMT $60.00 $60 PV ($659.46) ($470.15)
FV $1,000 $1,000 FV $1,000 $1,000
Type Type
PV ($659.46) ($470.15) Rate 10% 14%
Current Yield XY 9.0%
Currient Yield AB 13.0%
Part b.
Part c.

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