Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Chapter 8, Problem 20QAP
Summary Introduction
Introduction: The term current yield refers to the annual return earned from an investment in the mode of either interest or dividends, calculated by dividing it by the security's current market value. Yield to maturity (YTM) is the overall
To calculate: Current yield on the bonds, yield to maturity, effective annual yield
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Bond Yields: Williams Software has 6.4% coupon bonds on the market with 18
years to maturity. The bonds make semiannual payments and currently sell for
106.32% of par. What is the current yield on the bonds? The YTM? The effective
annual yield? (Note: effective annual yield uses the EAR calculation from chapter
6.)
What is the yield to maturity on a bond that has a price of $1,700 and a coupon rate of 12% annually for 6 years at the end of which it repays the principal of $1000? Is the bond selling at premium, at par, or at discount? How can you tell? (Using financial calculator)
Calculating and interpreting current yield and yield to maturity
Find the current yield of a 10%, 25-year bond that's currently priced in the market at $1,250. Now, use a financial calculator to find the yield to maturity on this bond (use annual compounding). What's the current yield and yield to maturity on this bond if it trades at $1,000? If it's priced at $750? The par value of the bond is $1,000. Round your answers to two decimal places. Do not round intermediate calculations.
Quote
Current Yield
Yield to Maturity
10%, 25 yr., $1,250
%
%
10%, 25 yr., $1,000
%
%
10%, 25 yr., $750
%
%
Chapter 8 Solutions
Corporate Finance
Ch. 8 - Prob. 1CQCh. 8 - Prob. 2CQCh. 8 - Prob. 3CQCh. 8 - Yield to Maturity Treasury bid and ask quotes are...Ch. 8 - Coupon Rate How does a bond issuer decide on the...Ch. 8 - Real and Nominal Returns Are there any...Ch. 8 - Prob. 7CQCh. 8 - Prob. 8CQCh. 8 - Term Structure What is the difference between the...Ch. 8 - Crossover Bonds Looking back at the crossover...
Ch. 8 - Municipal Bonds Why is it that municipal bonds are...Ch. 8 - Prob. 12CQCh. 8 - Treasury Market Take a look back at Figure 8.4....Ch. 8 - Prob. 14CQCh. 8 - Bonds as Equity The 100-year bonds we discussed in...Ch. 8 - Bond Prices versus Yields a. What is the...Ch. 8 - Interest Rate Risk All else being the same, which...Ch. 8 - Prob. 1QAPCh. 8 - Prob. 2QAPCh. 8 - Prob. 3QAPCh. 8 - Prob. 4QAPCh. 8 - Prob. 5QAPCh. 8 - Prob. 6QAPCh. 8 - Prob. 7QAPCh. 8 - Prob. 8QAPCh. 8 - Prob. 9QAPCh. 8 - Prob. 10QAPCh. 8 - Prob. 11QAPCh. 8 - Prob. 12QAPCh. 8 - Prob. 13QAPCh. 8 - Prob. 14QAPCh. 8 - Prob. 15QAPCh. 8 - Prob. 16QAPCh. 8 - Prob. 17QAPCh. 8 - Prob. 18QAPCh. 8 - Prob. 19QAPCh. 8 - Prob. 20QAPCh. 8 - Prob. 21QAPCh. 8 - Prob. 22QAPCh. 8 - Prob. 23QAPCh. 8 - Prob. 24QAPCh. 8 - Prob. 25QAPCh. 8 - Prob. 26QAPCh. 8 - Prob. 27QAPCh. 8 - Prob. 28QAPCh. 8 - Prob. 29QAPCh. 8 - Prob. 30QAPCh. 8 - Prob. 31QAPCh. 8 - Prob. 32QAPCh. 8 - Prob. 33QAPCh. 8 - Prob. 34QAPCh. 8 - Prob. 35QAPCh. 8 - Prob. 1MCCh. 8 - Prob. 3MCCh. 8 - Prob. 5MCCh. 8 - Prob. 6MCCh. 8 - Prob. 7MC
Knowledge Booster
Similar questions
- 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?arrow_forwardCurrent Yield for Annual Payments Heath Food Corporations bonds have 7 years remaining to maturity. The bonds have a face value of 1,000 and a yield to maturity of 8%. They pay interest annually and have a 9% coupon rate. What is their current yield?arrow_forwardBond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may be called in 4 years at a call price of 1,060. The bond sells for 1,100. (Assume that the bond has just been issued.) a. What is the bonds yield to maturity? b. What is the bonds current yield? c. What is the bonds capital gain or loss yield? d. What is the bonds yield to call?arrow_forward
- What is the semi-annual coupon bond’s nominal yield to maturity (YTM), if the years to maturity is 15 years, and sells for 105% with coupons rate of 10%? Assume the par value of the bond is $1,000. Using a financial calculatorarrow_forwardThe following table is the current term structure of interest rates based on $1,000 par value zero-coupon bonds.( full process) Bonds Years to Maturity Yield to Maturity (%) A 1 6.00 B 2 7.50 C 3 7.99 D 4 8.49 (a) According to the expectations hypothesis, what is the expected 1-year interest rate 1 year from now in terms of the current term structure of interest rates? (b) According to the liquidity preference theory, is the expected 1-year interest rate 1 year from now higher or lower than the one obtained in (a)? Explain your answer. (c) At what price should Bond C sell for two years from now based on the implied forward interest rates derived from the current term structure of interest rates?arrow_forwardYield to maturity The bond shown in the following table pays interest annually. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Par value $100 Coupon interest rate 14% Years to maturity 4 Current value $100 a. Calculate the yield to maturity (YTM) for the bond. b. What relationship exists between the coupon interest rate and yield to maturity and the par value and market value of a bond? Explain. a. The yield to maturity (YTM) for the bond is%. (Round to two decimal places.)arrow_forward
- (Calculating yield to maturity) A bond's market price is $750. It has a $1000 par value, will mature in 8 years, and has a coupon interest rate of 9 percent annual interest but makes its interest payment semiannually. What is the bond's yield to maturity ? What happens to the bond's yield to maturity if the bond matures in years ? What if it matures in 4 years? (use microsoft excel)arrow_forwardBart Software has 7.9 percent coupon bonds on the market with 22 years to maturity. The bonds make semiannual payments and currently sell for 109 percent of par. What is the current yield and YTM on the bonds?arrow_forwardYield to maturity The bond shown in the following table pays interest annually. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Par value $500 Coupon interest rate 14% Years to maturity 10 C... a. Calculate the yield to maturity (YTM) for the bond. b. What relationship exists between the coupon interest rate and yield to maturity and the par value and market value of a bond? Explain. Current value $840 a. The yield to maturity (YTM) for the bond is %. (Round to two decimal places.)arrow_forward
- Bond prices and maturity dates. Moore Company is about to issue a bond with annual coupon payments, an annual coupon rate of 5%, and a par value of $1,000. The yield to maturity for this bond is 6%. a. What is the price of the bond if it matures in 5, 10, 15, or 20 years? b. What do you notice about the price of the bond in relationship the maturity of the bond? a. What is the price of the bond if it matures in 5 years? $(Round to the nearest cent.) What is the price of the bond if it matures in 10 years? $(Round to the nearest cent.) What is the price of the bond if it matures in 15 years? $(Round to the nearest cent.) What is the price of the bond if it matures in 20 years? $ (Round to the nearest cent.) b. What do you notice about the price of the bond in relationship the maturity of the bond? (Select the best response.) O A. As the time to maturity increases, the price of the bond increases.arrow_forwardBES Company bonds, with current yield 14 per cent, will mature after 10 years with par value of Rs.1000. The coupon rate of these bonds is 10 per cent. Calculate the market price and the yield to maturity of the bond. How do the following impact the duration of a bond- Maturity, Coupon, Yield to Maturity and Frequency of Coupon Payments.arrow_forwardPharaoh, Inc. has four-year bonds outstanding that pay a coupon rate of 7.0 percent and make coupon payments semiannually. If these bonds are currently selling at $918.32. What is the yield to maturity that an investor can expect to earn on these bonds? Assume face value is $1000. (Round to 1 decimal) Solve for yield to maturity What is the effective annual yield?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning