Last year Carson Industries issued a 10-year, 13% semiannual coupon bondat its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065and it sells for $1,200.a. What are the bond’s nominal yield to maturity and its nominal yield to call? Would aninvestor be more likely to earn the YTM or the YTC?b. What is the current yield? Is this yield affected by whether the bond is likely to be called?(Hint: Refer to footnote 6 for the definition of the current yield and to Table 7.1.)c. What is the expected capital gains (or loss) yield for the coming year? Is this yielddependent on whether the bond is expected to be called? Explain your answer.
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:
Last year Carson Industries issued a 10-year, 13% semiannual coupon bond
at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065
and it sells for $1,200.
a. What are the bond’s nominal yield to maturity and its nominal yield to call? Would an
investor be more likely to earn the YTM or the YTC?
b. What is the current yield? Is this yield affected by whether the bond is likely to be called?
(Hint: Refer to footnote 6 for the definition of the current yield and to Table 7.1.)
c. What is the expected
dependent on whether the bond is expected to be called? Explain your answer.
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