Final answer:
The two yields commonly quoted for short-term investments are current yield and yield to maturity. Current yield is calculated by dividing the annual interest payment by the current market price of the bond, while yield to maturity considers all future coupons and the bond's price and time until maturity.
Step-by-step explanation:
The two yields commonly quoted for short-term investments (ST investments) are current yield and yield to maturity. Option C) Current yield and yield to maturity is the correct answer.The current yield is the annual interest payment divided by the current market price of the bond. Yield to maturity (YTM), on the other hand, is the total return anticipated on a bond if the bond is held until it matures, and it takes into account all coupon payments that will be made from the time of purchase until maturity as well as the difference between the purchase price and the par value of the bond.The two yields commonly quoted for short-term investments are:
Current yield: This is calculated by dividing the annual interest or dividend payment by the current market price of the investment. It represents the income generated by the investmentYield to maturity: This is the total return a bond investor can expect to receive if they hold the bond until it matures. It takes into account the coupon payments and the price appreciation or depreciation of the bond over timeFor example, if a bond has a face value of $1,000 and pays an annual coupon of $50, and its current market price is $950, the current yield would be 5.26% and the yield to maturity would depend on the bond's remaining term and the current market interest rates.For example, if you have bought a $1,000 bond with a coupon rate of 8%, the current yield would be calculated by taking the annual payments ($80) and dividing by the market price of the bond. To calculate yield to maturity would involve a more complex formula that takes into account all future coupon payments, the market price, and the time left until the bond matures.