Yield to maturity (YTM) and yield to call (YTC). Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder. Yield to Call: It refers to the rate of interest earned till the bonds are being called, but before maturity of the bond.

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Answer 1

Question

Chapter 7, Problem 12P

a.

Summary Introduction

To identify: Yield to maturity (YTM) and yield to call (YTC).

Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder.

Yield to Call: It refers to the rate of interest earned till the bonds are being called, but before maturity of the bond.

b.

Summary Introduction

To identify: Actual return on purchase of this bond.

c.

Summary Introduction

To identify: The reasons on whether the yield to maturity has been the most likely return, if bond is sold at discount.

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YIELD TO CALL It is now January 1, 2018, and you are considering the purchase of an outstanding bond that was issued on January 1, 2016. It has an 8% annual coupon and had a 30-year original maturity. (It matures on December 31, 2045.) There is 5 years of call pro-tection (until December 31, 2020), after which time it can be called at 108—that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 119.12% of par, or $1,191.20. a. What is the yield to maturity? What is the yield to call? b. If you bought this bond, which return would you actually earn? Explain your reasoning. c. Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return, or would the yield to call have been most likel

It is now January 1, 2018, and you are considering the purchase of anoutstanding bond that was issued on January 1, 2016. It has an 8% annual coupon and hada 30-year original maturity. (It matures on December 31, 2045.) There is 5 years of call protection(until December 31, 2020), after which time it can be called at 108—that is, at 108%of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at119.12% of par, or $1,191.20.a. What is the yield to maturity? What is the yield to call?b. If you bought this bond, which return would you actually earn? Explain your reasoning.c. Suppose the bond had been selling at a discount rather than a premium. Would theyield to maturity have been the most likely return, or would the yield to call havebeen most likely?

It is now January 1, 2022, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019. It has a 5.25% annual coupon and had a 30-year original maturity. There is 5 years of call protection, after which time it can be called at 105.25 - that is, at 105.25% of par, or $1,052.50. Interest rates have declined since it was issued, and it is now selling at 102.5% of par, or $1,025.00. What is the Yield to Maturity (YTM)? What is the Yield to Call (YTC)?

Answer 2

Question

Chapter 7, Problem 12P

a.

Summary Introduction

To identify: Yield to maturity (YTM) and yield to call (YTC).

Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder.

Yield to Call: It refers to the rate of interest earned till the bonds are being called, but before maturity of the bond.

b.

Summary Introduction

To identify: Actual return on purchase of this bond.

c.

Summary Introduction

To identify: The reasons on whether the yield to maturity has been the most likely return, if bond is sold at discount.

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Answer 3

Question

Chapter 7, Problem 12P

a.

Summary Introduction

To identify: Yield to maturity (YTM) and yield to call (YTC).

Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder.

Yield to Call: It refers to the rate of interest earned till the bonds are being called, but before maturity of the bond.

b.

Summary Introduction

To identify: Actual return on purchase of this bond.

c.

Summary Introduction

To identify: The reasons on whether the yield to maturity has been the most likely return, if bond is sold at discount.

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Answer 4

Question

Chapter 7, Problem 12P

a.

Summary Introduction

To identify: Yield to maturity (YTM) and yield to call (YTC).

Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder.

Yield to Call: It refers to the rate of interest earned till the bonds are being called, but before maturity of the bond.

b.

Summary Introduction

To identify: Actual return on purchase of this bond.

c.

Summary Introduction

To identify: The reasons on whether the yield to maturity has been the most likely return, if bond is sold at discount.

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Answer 5

Chapter 7, Problem 12P

a.

Summary Introduction

To identify: Yield to maturity (YTM) and yield to call (YTC).

Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder.

Yield to Call: It refers to the rate of interest earned till the bonds are being called, but before maturity of the bond.

b.

Summary Introduction

To identify: Actual return on purchase of this bond.

c.

Summary Introduction

To identify: The reasons on whether the yield to maturity has been the most likely return, if bond is sold at discount.

Answer 6

Chapter 7, Problem 12P

a.

Summary Introduction

To identify: Yield to maturity (YTM) and yield to call (YTC).

Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder.

Yield to Call: It refers to the rate of interest earned till the bonds are being called, but before maturity of the bond.

Answer 7

Chapter 7, Problem 12P

a.

Summary Introduction

To identify: Yield to maturity (YTM) and yield to call (YTC).

Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder.

Yield to Call: It refers to the rate of interest earned till the bonds are being called, but before maturity of the bond.

Answer 8

b.

Summary Introduction

To identify: Actual return on purchase of this bond.

Answer 9

b.

Summary Introduction

To identify: Actual return on purchase of this bond.

Answer 10

c.

Summary Introduction

To identify: The reasons on whether the yield to maturity has been the most likely return, if bond is sold at discount.

Answer 11

c.

Summary Introduction

To identify: The reasons on whether the yield to maturity has been the most likely return, if bond is sold at discount.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 7 - A sinking fund can be set up in one of two ways:...Ch. 7 - Can the following equation be used to find the...Ch. 7 - The values of outstanding bonds change whenever...Ch. 7 - If interest rates rise after a bond issue, what...Ch. 7 - Discuss the following statement: A bonds yield to...Ch. 7 - Prob. 6Q Ch. 7 - Assume that you have a short investment horizon...Ch. 7 - Indicate whether each of the following actions...Ch. 7 - Why is a call provision advantageous to a bond...Ch. 7 - Prob. 10Q

Yield to maturity (YTM) and yield to call (YTC). Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder. Yield to Call: It refers to the rate of interest earned till the bonds are being called, but before maturity of the bond.

Solution Summary: The author explains the difference between Yield to maturity and yield to call.

To identify: Actual return on purchase of this bond.

To identify: The reasons on whether the yield to maturity has been the most likely return, if bond is sold at discount.

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Chapter 7 Solutions

Yield to maturity (YTM) and yield to call (YTC). Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder. Yield to Call: It refers to the rate of interest earned till the bonds are being called, but before maturity of the bond.

Solution Summary: The author explains the difference between Yield to maturity and yield to call.

To identify: Yield to maturity (YTM) and yield to call (YTC). Yield to Maturity (YTM): It refers to the rate of interest earned till the maturity of the bond by the bond holder. Yield to Call: It refers to the rate of interest earned till the bonds are being called, but before maturity of the bond.

To identify: Actual return on purchase of this bond.

To identify: The reasons on whether the yield to maturity has been the most likely return, if bond is sold at discount.

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Chapter 7 Solutions