Bond had been selling at discount rather than premium

Assignment Help Financial Management

Reference no: EM131989646

YIELD TO CALL

It is now January 1, 2016, and you are considering the purchase of an outstanding bond that was issued on January 1, 2014. It has a 9.5% annual coupon and had a 20-year original maturity. (It matures on December 31, 2033.) There is 5 years of call protection (until December 31, 2018), after which time it can be called at 109-that is, at 109% of par, or $1,090. Interest rates have declined since it was issued, and it is now selling at 116.545% of par, or $1,165.45.

What is the yield to maturity? Round your answer to two decimal places. %

What is the yield to call? Round your answer to two decimal places. %

If you bought this bond, which return would you actually earn? Select the correct option.

Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.

Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.

Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.

Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.

Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC.

-Select- Item

Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return, or would the yield to call have been most likely?

Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.

Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.

Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.

Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.

Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC.

Reference no: EM131989646

Questions Cloud

What is change in price bond will experience in dollars : If the yield to maturity falls to 6.25 percent. What is the change in price the bond will experience in dollars?

Firm preparing its financial plan for the upcoming year : Kettle Company is U.S. firm preparing its financial plan for the upcoming year.

Current yield-capital gains yield and yield to maturity : Will the actual realized yields be equal to the expected yields if interest rates change? If not, how will they differ?

What rate of return would she have earned for past year : If Janet sold the bond today for $936.98, what rate of return would she have earned for the past year?

Bond had been selling at discount rather than premium : Suppose bond had been selling at discount rather than premium. Would yield to maturity have been most likely return or would yield to call have been most likely

What is effective annual rate of interest : The terms of sale are 3/12, net 35. What is the effective annual rate of interest?

What is the bond nominal yield to maturity : What is the bond's nominal yield to maturity? Is this yield affected by whether the bond is likely to be called?

What is the most expensive car you can afford : What is the most expensive car you can afford if you finance it for 48 months?

Dollar costs of meeting this obligation using forward hedges : Explain how IBM should do a forward hedge. Compute the future dollar costs of meeting this obligation using the forward hedges.

User Account

All Pages