Question

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%

Answer 1

Answer:

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.