Which is a better measure of value of a bond over the life of the bond, Current Yield (CY) or Yield to Maturity (YTM)

Which is a better measure of value of a bond over the life of the bond, Current Yield (CY) or Yield to Maturity (YTM)

1. Which is a better measure of value of a bond over the life of the bond, Current Yield (CY) or Yield to Maturity (YTM)? Why?

2. Suppose you are a professional bond investor, and you believe interest rates will increase dramatically exactly 3 years from today. Then, today, should you look into buying bonds with a maturity of greater or less than 3 years? Why? (Think about how market interest rates change the value of bonds!)

Use DuPont analysis to explain the critical factors that account for the differences in the two companies’ ROE.

Company a 13.33%

Company B 24%

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