ABC requires P10,000,000 cash at the start of next year for ten years. Thefollowing were offered by several banks for a bond issuance. Based onthe information below and using the YTM formula, what would be thecost of the ideal bond option?FaceEst. NetNominalBankTermAmountProceedsRateAP10,500,000 5 years, nonrenewable P 10,500,0005%В9,500,000 5 years, renewable9,500,0008%10,000,000 10 years10,200,00010%D10,000,000 10 years10,500,00011%

YTM, or yield to maturity, is used to estimate the entire return expected from holding a bond to its…

ABC requires P10,000,000 cash at the start of next year for ten years. The following were offered by several banks for a bond issuance. Based on the information below and using the YTM formula, what would be the cost of the ideal bond option? Bank ABC D Face Amount 10,500,000 9,500,000 10,000,000 10 years 10,000,000 10 years Term 5 years, nonrenewable 5 years, renewable Est. Net Proceeds ▸ 10,500,000 9,500,000 10,200,000 10,500,000 Nominal Rate 5% 8% 10% 11%

ABC requires P10,000,000 cash at the start of next year for ten years. The following were offered by several banks for a bond issuance. Based on the information below and using the YTM formula, what would be the cost of the ideal bond option? Bank ABC D Face Amount 10,500,000 9,500,000 10,000,000 10 years 10,000,000 10 years Term 5 years, nonrenewable 5 years, renewable Est. Net Proceeds ▸ 10,500,000 9,500,000 10,200,000 10,500,000 Nominal Rate 5% 8% 10% 11%

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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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

ABC requires P10,000,000 cash at the start of next year for ten years. The
following were offered by several banks for a bond issuance. Based on
the information below and using the YTM formula, what would be the
cost of the ideal bond option?
Face
Est. Net
Nominal
Bank
Term
Amount
Proceeds
Rate
A
P10,500,000 5 years, nonrenewable P 10,500,000
5%
В
9,500,000 5 years, renewable
9,500,000
8%
10,000,000 10 years
10,200,000
10%
D
10,000,000 10 years
10,500,000
11%

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