Question

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%?

Answer 1

Bond A is far better.

Step-by-step explanation:

Assuming you're spending $800 on every bond.

After twenty years,

Bond A will be:

⇒
`800* 1.15^(20)+200`

⇒
`13,293`

Bond B will be:

⇒
`800* 1.05^(20)`

⇒
`2,123`

So that the above is the appropriate answer.