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9 October, 01:02

George has been looking into buying a bond for his portfolio. His greatest investment objective is total return. Which of the following bonds would be the BEST choice for George with this objective in mind?

A. A bond which has a price of $850, a Yield to Maturity of 4%, and a Current Yield of 3.75%

B. A bond which has a price of $875, a Yield to Maturity of 3.95%, and a Current Yield of 3.80%

C. A bond which has a price of $825, a Yield to Maturity of 3.5%, and a Current Yield of 3.45%

D. A bond which has a price of $925, a Yield to Maturity of 3.75%, and a Current Yield of 3.65%

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Answers (1)
  1. 9 October, 01:05
    0
    A. A bond which has a price of $850, a Yield to Maturity of 4%, and a Current Yield of 3.75%

    Explanation:

    Since George is focussed on achieving a high total return for his portfolio, he will consider adding a bond whose yield to maturity (YTM) is the highest. Among these options, option A would be ideal since it has a 4% YTM; he would probably not consider if the price of $850 is high or not. This is the annual interest rate paid on the bond investment.
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