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Last year Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,075 and it sells for $1,280. a. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places. Would an inyestor, be more likely.to earn. the YTM or.the.YTC2 -Select-

Last year Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,075 and it sells for $1,280. a. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places. Would an inyestor, be more likely.to earn. the YTM or.the.YTC2 -Select-

Essentials Of Investments
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
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### Bond Analysis Exercise Last year, Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,075 and it sells for $1,280. #### Questions: #### a. Calculate the bond's nominal yield to maturity (YTM) and yield to call (YTC). - **Nominal Yield to Maturity (YTM):** - Do not round intermediate calculations. - Round your final answer to two decimal places. - Answer: __________ % - **Nominal Yield to Call (YTC):** - Do not round intermediate calculations. - Round your final answer to two decimal places. - Answer: __________ % - **Decision Point:** - Would an investor be more likely to earn the YTM or the YTC? - Options: - Since the YTM is above the YTC, the bond is likely to be called. - Since the YTC is above the YTM, the bond is likely to be called. - Since the YTM is above the YTC, the bond is not likely to be called. - Since the YTC is above the YTM, the bond is not likely to be called. - Since the coupon rate on the bond has declined, the bond is not likely to be called. - Answer: __________ #### b. Analyze the effect on yield if the bond is called. - **Yield Effect Analysis:** - Is this yield affected by whether the bond is likely to be called? - Options: - I. If the bond is called, the capital gains yield will remain the same but the current yield will be different. - II. If the bond is called, the current yield and the capital gains yield will both be different. - III. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different. - IV. If the bond is called, the current yield will remain the same but the capital gains yield will be different. - V. If the bond is called, the current yield and the capital gains yield will remain the same. - Answer: __________ #### c. Calculate the expected capital gains (or loss) yield for the coming year. - Use amounts calculated in the above
Transcribed Image Text:### Bond Analysis Exercise Last year, Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,075 and it sells for $1,280. #### Questions: #### a. Calculate the bond's nominal yield to maturity (YTM) and yield to call (YTC). - **Nominal Yield to Maturity (YTM):** - Do not round intermediate calculations. - Round your final answer to two decimal places. - Answer: __________ % - **Nominal Yield to Call (YTC):** - Do not round intermediate calculations. - Round your final answer to two decimal places. - Answer: __________ % - **Decision Point:** - Would an investor be more likely to earn the YTM or the YTC? - Options: - Since the YTM is above the YTC, the bond is likely to be called. - Since the YTC is above the YTM, the bond is likely to be called. - Since the YTM is above the YTC, the bond is not likely to be called. - Since the YTC is above the YTM, the bond is not likely to be called. - Since the coupon rate on the bond has declined, the bond is not likely to be called. - Answer: __________ #### b. Analyze the effect on yield if the bond is called. - **Yield Effect Analysis:** - Is this yield affected by whether the bond is likely to be called? - Options: - I. If the bond is called, the capital gains yield will remain the same but the current yield will be different. - II. If the bond is called, the current yield and the capital gains yield will both be different. - III. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different. - IV. If the bond is called, the current yield will remain the same but the capital gains yield will be different. - V. If the bond is called, the current yield and the capital gains yield will remain the same. - Answer: __________ #### c. Calculate the expected capital gains (or loss) yield for the coming year. - Use amounts calculated in the above
### Bond Yield Analysis and Calculations #### Background: Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. The bond can be called in 6 years at a price of $1,075 and currently sells for $1,280. #### a. Bond Yield Questions: 1. **Nominal Yield to Maturity (YTM):** - Calculate without rounding intermediate values. - Provide the final answer rounded to two decimal places. **Answer:** \( \_\_\_ \% \) 2. **Nominal Yield to Call (YTC):** - Calculate without rounding intermediate values. - Provide the final answer rounded to two decimal places. **Answer:** \( \_\_\_ \% \) 3. **Investment Likelihood:** - Determine if an investor is more likely to earn the YTM or the YTC. **Selection:** \( \_\_\_\text{Select} \) #### b. Current Yield: - **Current Yield Calculation:** - Follow guidance from Footnote 6 and Table 7.1. - Provide the answer rounded to two decimal places. **Answer:** \( \_\_\_ \% \) - **Impact of Call on Yield:** - Determine if the yield is affected if the bond is likely to be called. - Options: 1. Capital gains yield unchanged, current yield differs. 2. Both yields differ. 3. Current yield and capital gains yield unchanged, coupon rate differs. 4. Current yield unchanged, capital gains yield differs. 5. Both yields unchanged. **Selection:** \( \_\_\_\text{Select} \) #### c. Expected Capital Gains (or Loss) Yield: - **Capital Gains (or Loss) Yield Calculation:** - Use values from previous calculations. - Indicate negative values with a minus sign. - Provide the answer rounded to two decimal places. **Answer:** \( \_\_\_ \% \) - **Dependence on Call Expectation:** - Assess if the yield depends on the bond being called. - Options: 1. Yield independent of call expectation. 2. Expected total return is YTM if called. 3. Expected total return is YTC if not called. 4. Total
Transcribed Image Text:### Bond Yield Analysis and Calculations #### Background: Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. The bond can be called in 6 years at a price of $1,075 and currently sells for $1,280. #### a. Bond Yield Questions: 1. **Nominal Yield to Maturity (YTM):** - Calculate without rounding intermediate values. - Provide the final answer rounded to two decimal places. **Answer:** \( \_\_\_ \% \) 2. **Nominal Yield to Call (YTC):** - Calculate without rounding intermediate values. - Provide the final answer rounded to two decimal places. **Answer:** \( \_\_\_ \% \) 3. **Investment Likelihood:** - Determine if an investor is more likely to earn the YTM or the YTC. **Selection:** \( \_\_\_\text{Select} \) #### b. Current Yield: - **Current Yield Calculation:** - Follow guidance from Footnote 6 and Table 7.1. - Provide the answer rounded to two decimal places. **Answer:** \( \_\_\_ \% \) - **Impact of Call on Yield:** - Determine if the yield is affected if the bond is likely to be called. - Options: 1. Capital gains yield unchanged, current yield differs. 2. Both yields differ. 3. Current yield and capital gains yield unchanged, coupon rate differs. 4. Current yield unchanged, capital gains yield differs. 5. Both yields unchanged. **Selection:** \( \_\_\_\text{Select} \) #### c. Expected Capital Gains (or Loss) Yield: - **Capital Gains (or Loss) Yield Calculation:** - Use values from previous calculations. - Indicate negative values with a minus sign. - Provide the answer rounded to two decimal places. **Answer:** \( \_\_\_ \% \) - **Dependence on Call Expectation:** - Assess if the yield depends on the bond being called. - Options: 1. Yield independent of call expectation. 2. Expected total return is YTM if called. 3. Expected total return is YTC if not called. 4. Total
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