Calculate YTC using a financial calculator by entering the number of payment periods until call for N, the price of the bond for PV, the interest payments for PMT, and the call price for FV. Then you can solve for 1/YR YTC. Again, remember you need make the appropriate adjustments for a semiannual bond and realize that the calculated 1/YR is on a periodic basis so you will need to mulbply the rate by 2 to obtain the annual rate. In addition, you need to make sure that the signs for PMT and FV are identical and the opposite sign is used for PV; otherwise, your answer will be incorrect. A company is more likely to call its bonds if they are able to replace their current high-coupon debt with less expensive financing. A bond is more likely to be called if its price is above rate is less than its coupon rate. par-because this means that the going market interest Quantitative Problem: Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 8.4% with semiannual payments of $42, and a par value of $1,000. The price of each bond in the issue is $1.240.00. The bond issue is callable in 5 years at a call price of $1,084. What is the bond's current yield? Do not round intermediate calculations. Round your answer to two decimal places. % What is the bond's nominal annual yield to maturity (YTM)? Do not round intermediate calculations. Round your answer to two decimal places. % What is the bond's nominal annual yield to call (YTC)? Do not round intermediate calculations. Round your answer to two decimal places. % Assuming interest rates remain at current levels, will the bond issue be called? The firm -Select call the bond.
Calculate YTC using a financial calculator by entering the number of payment periods until call for N, the price of the bond for PV, the interest payments for PMT, and the call price for FV. Then you can solve for 1/YR YTC. Again, remember you need make the appropriate adjustments for a semiannual bond and realize that the calculated 1/YR is on a periodic basis so you will need to mulbply the rate by 2 to obtain the annual rate. In addition, you need to make sure that the signs for PMT and FV are identical and the opposite sign is used for PV; otherwise, your answer will be incorrect. A company is more likely to call its bonds if they are able to replace their current high-coupon debt with less expensive financing. A bond is more likely to be called if its price is above rate is less than its coupon rate. par-because this means that the going market interest Quantitative Problem: Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 8.4% with semiannual payments of $42, and a par value of $1,000. The price of each bond in the issue is $1.240.00. The bond issue is callable in 5 years at a call price of $1,084. What is the bond's current yield? Do not round intermediate calculations. Round your answer to two decimal places. % What is the bond's nominal annual yield to maturity (YTM)? Do not round intermediate calculations. Round your answer to two decimal places. % What is the bond's nominal annual yield to call (YTC)? Do not round intermediate calculations. Round your answer to two decimal places. % Assuming interest rates remain at current levels, will the bond issue be called? The firm -Select call the bond.
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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Transcribed Image Text:Calculate YTC using a financial calculator by entering the number of payment periods until call for N, the price of the bond for PV, the interest payments for PMT, and the call price for FV. Then you can solve for 1/YR YTC. Again, remember you need to
make the appropriate adjustments for a semiannual bond and realize that the calculated 1/YR is on a periodic basis so you will need to multiply the rate by 2 to obtain the annual rate. In addition, you need to make sure that the signs for PMT and
FV are identical and the opposite sign is used for PV; otherwise, your answer will be incorrect.
A company is more likely to call its bonds if they are able to replace their current high-coupon debt with less expensive financing. A bond is more likely to be called if its price is above par-because this means that the going market interest
rate is less than its coupon rate.
Quantitative Problem: Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 8.4% with semiannual payments of $42, and a par value of $1,000. The price of each bond in the issue is $1,240.00. The
bond issue is callable in 5 years at a call price of $1,084.
What is the bond's current yield? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is the bond's nominal annual yield to maturity (YTM)? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is the bond's nominal annual yield to call (YTC)? Do not round intermediate calculations. Round your answer to two decimal places.
%
Assuming interest rates remain at current levels, will the bond issue be called?
The firm -Select-
call the bond.
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