Investors receive varies based on market conditions

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Reference no: EM131952886

1a. Coupon payments are fixed, but the percentage return that investors receive varies based on the market conditions. this percentage return is referred to as bonds yield.

Yield to Maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. which of the following is one of these assumptions ?

(a) The probability of default is zero

(b) The bond is callable

1b. Consider the case of Demand Inc.

Demand Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1000 and their current market price is $1,160 . However Demand Inc. may call the bonds in eight years at a call price of $1060.

What is their YTM?

(a) 9.23%

(b) 6.84%

(d) 6.05%

What is their YTC?

(a) 16.84%

(b) 6.91%

(d) 7.36%

1c. If the interest rates are expected to remain constant, what is the best estimate of the remaining life left for Demand Inc.'s bond?

a. 18 years

b. 5 years

c. 13 years

d. 8 years

If Demand Inc. issues new bonds today, what coupon rate must the bond have to be issue at par?

a. 7.36%

b. 8.24%

c. 9.23%

d. 6.91%

Reference no: EM131952886

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