7.04 A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,205.84, and currently sell at a price of $1,362.04. What is their nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is their nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % What return should investors expect to earn on these bonds? Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC.
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
7.04
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,205.84, and currently sell at a price of $1,362.04.
What is their nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is their nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places.
%
What return should investors expect to earn on these bonds?
- Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
- Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
- Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
- Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
- Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC.
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can you explain why the answer for the third part is option number 2 from the selection of answers
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