Taussig Corp.'s bonds currently sell for $1,135. They have a 6.95% annual coupon rate and a 15-year maturity, but they can be called in 4 years at $1,049.50. Assume that no costs other than the call premium would beincurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expectto earn if he or she purchases these bonds?O a. 2.18%b. 2.33%c. 4.65%O d. 4.36%e. 3.99% Suppose the rate of return on a 10-year T-bond is 5.25%, the expected average rate of inflation over the next 10 years is 1.80%, the MRP on a 10-year T-bond is 0.90%, no MRP is required on a TIPS, and no liquidity premiumis required on any Treasury security. Given this information, what should the yield be on a 10-year TIPS? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.O a. 4.27%O b. 4.35%O c. 2.50%d. 2.55%O e. 3.45%

Yield to call refers to the return an investor receives when he decides to redeem a fixed-income…

Taussig Corp.'s bonds currently sell for $1,135. They have a 6.95% annual coupon rate and a 15-year maturity, but they can be called in 4 years at $1,049.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expe to earn if he or she purchases these bonds? O a. 2.18% O b. 2.33% O c. 4.65% O d. 4.36% e 3.99%

Taussig Corp.'s bonds currently sell for $1,135. They have a 6.95% annual coupon rate and a 15-year maturity, but they can be called in 4 years at $1,049.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expe to earn if he or she purchases these bonds? O a. 2.18% O b. 2.33% O c. 4.65% O d. 4.36% e 3.99%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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MeCue Inc.'s bonds currently sell for $1,045. They pay an $80 annual coupon, have a 10-year maturity, and a $1,000 par value, but they can be called in 4 years at $1,115. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM; it is possible to get a negative answer.) a. -2.06 p.p. b. -1.89 p.p. c. -1.77 p.p. d. -2.51 p.p. e, -1.15 p.p.
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