Today, Ernire bought Bond E four years ago, when the market interest rate was 10%. maturity and has an annual coupon rate of 10%, making semi-annual coupon payments. If the yield to maturity on the bond is currently 8.5% APR, and assuming the bond is priced correctly, what do you know about the price today? O Price < $1,000 Price $1,000 O Price $1,000 Not enough information to determine

Today, Ernire bought Bond E four years ago, when the market interest rate was 10%. maturity and has an annual coupon rate of 10%, making semi-annual coupon payments. If the yield to maturity on the bond is currently 8.5% APR, and assuming the bond is priced correctly, what do you know about the price today? O Price < $1,000 Price $1,000 O Price $1,000 Not enough information to determine

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 10P

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Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?
Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
A Macrohard Corp. bond carries an 10% coupon, paid annually and has 10 years to maturity. The par value is $1000 and the required rate of return is 5%. a) Calculate the price of the bond today (P0) b) Is this a discount or premium bond? Explain? c) Calculate the price of the bond one year from now (P1) d) If you buy the bond today and sell it one year from now, calculate i) Current yield ii) Capital gains yield iii) Total rate of return (yield)
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