Last year Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,075 and it sells for $1,280. a. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places. Would an inyestor, be more likely.to earn. the YTM or.the.YTC2 -Select-

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 22P: Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of...
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Last year Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of
$1,075 and it sells for $1,280.
a. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places.
%
Would an investor he more likelv to earn the YTM.or the YTC?
V -Select-
Since the YTM is above the YTC, the bond is likely to be called.
Since the YTC is above the YTM, the bond is likely to be called.
Since the YTM is above the YTC, the bond is not likely to be called.
Since the YTC is above the YTM, the bond is not likely to be called.
irrent yield and to Table 7.1) Round your answer to two decimal places.
Since the coupon rate on the bond has declined, the bond is not likely to be called.
IS trIs yreiu anecteu by wiietier the Donu IS TKery co De cancur
I. If the bond is called, the capital gains yield will remain the same but the current yield will be different.
II. If the bond is called, the current yield and the capital gains yield will both be different.
III. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different.
IV. If the bond is called, the current yield will remain the same but the capital gains yield will be different.
V. If the bond is called, the current yield and the capital gains yield will remain the same.
-Select- v
c. What is the expected capital gains (or loss) yield for the coming year? Use amounts calculated in above requirements for calculation, if required.
Negative value should be indicated by a minus sign. Round your answer to two decimal places.
%
Is this yield dependent on whether the bond is expected to be called?
I. The expected capital gains (or loss) yield for the coming year does not depend on whether or not the bond is expected to be called.
II. If the bond is expected to be called, the appropriate expected total return is the YTM.
III. If the bond is not expected to be called, the appropriate expected total return is the YTC.
IV. If the bond is expected to be called, the appropriate expected total return will not change.
V. The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called.
-Select- v
Transcribed Image Text:Last year Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,075 and it sells for $1,280. a. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % Would an investor he more likelv to earn the YTM.or the YTC? V -Select- Since the YTM is above the YTC, the bond is likely to be called. Since the YTC is above the YTM, the bond is likely to be called. Since the YTM is above the YTC, the bond is not likely to be called. Since the YTC is above the YTM, the bond is not likely to be called. irrent yield and to Table 7.1) Round your answer to two decimal places. Since the coupon rate on the bond has declined, the bond is not likely to be called. IS trIs yreiu anecteu by wiietier the Donu IS TKery co De cancur I. If the bond is called, the capital gains yield will remain the same but the current yield will be different. II. If the bond is called, the current yield and the capital gains yield will both be different. III. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different. IV. If the bond is called, the current yield will remain the same but the capital gains yield will be different. V. If the bond is called, the current yield and the capital gains yield will remain the same. -Select- v c. What is the expected capital gains (or loss) yield for the coming year? Use amounts calculated in above requirements for calculation, if required. Negative value should be indicated by a minus sign. Round your answer to two decimal places. % Is this yield dependent on whether the bond is expected to be called? I. The expected capital gains (or loss) yield for the coming year does not depend on whether or not the bond is expected to be called. II. If the bond is expected to be called, the appropriate expected total return is the YTM. III. If the bond is not expected to be called, the appropriate expected total return is the YTC. IV. If the bond is expected to be called, the appropriate expected total return will not change. V. The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called. -Select- v
Last year Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of
$1,075 and it sells for $1,280.
a. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places.
Would an investor, be more, likely.to earn. the YTM or. the YTC2.
-Select-
b. What is the current yield? (Hint: Refer to Footnote 6 for the definition of the current yield and to Table 7.1) Round your answer to two decimal places.
Is this yield affected by whether the bond is likely to be called?
I. If the bond is called, the capital gains yield will remain the same but the current yield will be different.
II. If the bond is called, the current yield and the capital gains yield will both be different.
III. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different.
IV. If the bond is called, the current yield will remain the same but the capital gains yield will be different.
V. If the bond is called, the current yield and the capital gains yield will remain the same.
-Select- v
c. What is the expected capital gains (or loss) yield for the coming year? Use amounts calculated in above requirements for calculation, if required.
Negative value should be indicated by a minus sign. Round your answer to two decimal places.
%
Is this yield dependent on whether the bond is expected to be called?
I. The expected capital gains (or loss) yield for the coming year does not depend on whether or not the bond is expected to be called.
II. If the bond is expected to be called, the appropriate expected total return is the YTM.
III. If the bond is not expected to be called, the appropriate expected total return is the YTC.
IV. If the bond is expected to be called, the appropriate expected total return will not change.
V. The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called.
-Select- v
Transcribed Image Text:Last year Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,075 and it sells for $1,280. a. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places. Would an investor, be more, likely.to earn. the YTM or. the YTC2. -Select- b. What is the current yield? (Hint: Refer to Footnote 6 for the definition of the current yield and to Table 7.1) Round your answer to two decimal places. Is this yield affected by whether the bond is likely to be called? I. If the bond is called, the capital gains yield will remain the same but the current yield will be different. II. If the bond is called, the current yield and the capital gains yield will both be different. III. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different. IV. If the bond is called, the current yield will remain the same but the capital gains yield will be different. V. If the bond is called, the current yield and the capital gains yield will remain the same. -Select- v c. What is the expected capital gains (or loss) yield for the coming year? Use amounts calculated in above requirements for calculation, if required. Negative value should be indicated by a minus sign. Round your answer to two decimal places. % Is this yield dependent on whether the bond is expected to be called? I. The expected capital gains (or loss) yield for the coming year does not depend on whether or not the bond is expected to be called. II. If the bond is expected to be called, the appropriate expected total return is the YTM. III. If the bond is not expected to be called, the appropriate expected total return is the YTC. IV. If the bond is expected to be called, the appropriate expected total return will not change. V. The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called. -Select- v
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