Compute the realized rate of return for an investor

Assignment Help Financial Management

Reference no: EM132064820

Yield to call Six years ago the Templeton Company issued 25-year bonds with a 14% annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, with 5 years of call protection.

Today Templeton called the bonds.

Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. %

Why the investor should or should not be happy that Templeton called them. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM.

If investors wish to reinvest their interest receipts, they can now do so at higher interest rates. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM. If investors wish to reinvest their interest receipts, they must do so at lower interest rates.

Since the bonds have been called, investors will receive a call premium and can declare a capital gain on their tax returns. Since the bonds have been called, investors will no longer need to consider reinvestment rate risk. Since the bonds have been called, interest rates must have fallen sufficiently such that the YTC is less than the YTM.

If investors wish to reinvest their interest receipts, they must do so at lower interest rates.

Reference no: EM132064820

Questions Cloud

At what price will the bond sell : The yield to maturity on 1-year zero-coupon bonds is currently 8.5%; the YTM on 2-year zeros is 9.5%.

The pharmacist at arnold palmer : The pharmacist at Arnold Palmer? Hospital, Wende? Huehn-Brown, receives 1212 requests for prescriptions each?

Demand for its products and its marketing communications : Think about recommendations you would make with regard to market research for Anthony's Orchard and how those recommendations might impact

What is the effective annual percentage rate : You put your money in a passbook savings account in which the interest rate is 4.2% per year compounded daily. What is the effective annual percentage rate?

Compute the realized rate of return for an investor : Yield to call Six years ago the Templeton Company issued 25-year bonds with a 14% annual coupon rate at their $1,000 par value.

What was the total number of t-shirts and shorts sold : If total sales were $1,040 and people bought 4 times as many T-shirts as shorts, what was the total number of T-shirts and shorts sold?

What is the appraisal value of this property : What is the appraisal value of this property using the income capitalization approach?

Nature of competition in industry : What do these factors tell you about the nature of competition in each industry? What are the implications for the company in terms of opportunities and threat

Calculate the present value of the collateral : Calculate the present value of the collateral. Write down the equation that determines the (stripped) yield-to-maturity of the bond.

User Account

All Pages