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What is the expected capital gains yield for each bond? What is the expected total return for each bond? Round your answers to two decimal places. Bond C Expected capital gains yield Expected total return % Bond A % % % Bond B % % e. Mr. Clark is considering another bond, Bond D. It has a 9% semiannual coupon and a $1,000 face value (i.e., it pays a $45 coupon every 6 months). Bond D is scheduled to mature in 8 years and has a price of $1,170. It is also callable in 6 years at a call price of $1,030. 1. What is the bond's nominal yield to maturity? Round your answer to two decimal places. 2. What is the bond's nominal yield to call? Round your answer to two decimal places. % % 3. If Mr. Clark were to purchase this bond, would he be more likely to receive the yield t maturity or yield to call? Explain your answer. Because the YTM is the YTC, Mr. Clark expect the bond to be called. Consequently, he would earn

What is the expected capital gains yield for each bond? What is the expected total return for each bond? Round your answers to two decimal places. Bond C Expected capital gains yield Expected total return % Bond A % % % Bond B % % e. Mr. Clark is considering another bond, Bond D. It has a 9% semiannual coupon and a $1,000 face value (i.e., it pays a $45 coupon every 6 months). Bond D is scheduled to mature in 8 years and has a price of $1,170. It is also callable in 6 years at a call price of $1,030. 1. What is the bond's nominal yield to maturity? Round your answer to two decimal places. 2. What is the bond's nominal yield to call? Round your answer to two decimal places. % % 3. If Mr. Clark were to purchase this bond, would he be more likely to receive the yield t maturity or yield to call? Explain your answer. Because the YTM is the YTC, Mr. Clark expect the bond to be called. Consequently, he would earn

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
Problem 1PS
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Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: • Bond A has a 10% annual coupon, matures in 12 years, and has a $1,000 face value. • Bond B has an 8% annual coupon, matures in 12 years, and has a $1,000 face value. • Bond C has a 12% annual coupon, matures in 12 years, and has a $1,000 face value. Each bond has a yield to maturity of 10%. The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Use a minus sign to enter negativ values, if any. If an answer is zero, enter "0". X Download spreadsheet Bond Valuation-880c58.xlsx a. Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, at a discount, or at par. Bond A is selling at par equal to 0 the going interest rate. because its coupon rate is because its coupon rate is Bond B is selling at ✔ the going interest rate. because its coupon rate is greater the going interest rate. Bond C is selling at a discount a discount a premium A 863.73 ✔ b. Calculate the price of each of the three bonds. Round your answers to the nearest cent. Price (Bond A): $ 1000✔ less than 9.26 % greater than than Price (Bond B): $ Price (Bond C): $ 1136.27 ✔ c. Calculate the current yield for each of the three bonds. (Hint: The expected current yield is calculated as the annual interest divided by the price of the bond.) Round your answers to two decimal places. Current yield (Bond A): 10✔✔ % Current yield (Bond B): Current yield (Bond C): d. If the yield to maturity for each bond remains at 10%, what will be the price of each bond 1 year from now? Round your answers to the nearest cent. Price (Bond A): $ 1000✔ 10.56%
Transcribed Image Text:Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: • Bond A has a 10% annual coupon, matures in 12 years, and has a $1,000 face value. • Bond B has an 8% annual coupon, matures in 12 years, and has a $1,000 face value. • Bond C has a 12% annual coupon, matures in 12 years, and has a $1,000 face value. Each bond has a yield to maturity of 10%. The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Use a minus sign to enter negativ values, if any. If an answer is zero, enter "0". X Download spreadsheet Bond Valuation-880c58.xlsx a. Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, at a discount, or at par. Bond A is selling at par equal to 0 the going interest rate. because its coupon rate is because its coupon rate is Bond B is selling at ✔ the going interest rate. because its coupon rate is greater the going interest rate. Bond C is selling at a discount a discount a premium A 863.73 ✔ b. Calculate the price of each of the three bonds. Round your answers to the nearest cent. Price (Bond A): $ 1000✔ less than 9.26 % greater than than Price (Bond B): $ Price (Bond C): $ 1136.27 ✔ c. Calculate the current yield for each of the three bonds. (Hint: The expected current yield is calculated as the annual interest divided by the price of the bond.) Round your answers to two decimal places. Current yield (Bond A): 10✔✔ % Current yield (Bond B): Current yield (Bond C): d. If the yield to maturity for each bond remains at 10%, what will be the price of each bond 1 year from now? Round your answers to the nearest cent. Price (Bond A): $ 1000✔ 10.56%
Price (Bond B): $ Price (Bond C): $ 1129.90✔✔ What is the expected capital gains yield for each bond? What is the expected total return for each bond? Round your answers to two decimal places. Bond A 870.10 ✔ Expected capital gains yield Expected total return % % % % Bond B % % e. Mr. Clark is considering another bond, Bond D. It has a 9% semiannual coupon and a $1,000 face value (i.e., it pays a $45 coupon every 6 months). Bond D is scheduled to mature in years and has a price of $1,170. It is also callable in years at a call price of $1,030. 1. What is the bond's nominal yield to maturity? Round your answer to two decimal places. Bond C 2. What is the bond's nominal yield to call? Round your answer to two decimal places. the YTC, Mr. Clark % % 3. If Mr. Clark were to purchase this bond, would he be more likely to receive the yield to maturity or yield to call? Explain your answer. Because the YTM is expect the bond to be called. Consequently, he would earn
Transcribed Image Text:Price (Bond B): $ Price (Bond C): $ 1129.90✔✔ What is the expected capital gains yield for each bond? What is the expected total return for each bond? Round your answers to two decimal places. Bond A 870.10 ✔ Expected capital gains yield Expected total return % % % % Bond B % % e. Mr. Clark is considering another bond, Bond D. It has a 9% semiannual coupon and a $1,000 face value (i.e., it pays a $45 coupon every 6 months). Bond D is scheduled to mature in years and has a price of $1,170. It is also callable in years at a call price of $1,030. 1. What is the bond's nominal yield to maturity? Round your answer to two decimal places. Bond C 2. What is the bond's nominal yield to call? Round your answer to two decimal places. the YTC, Mr. Clark % % 3. If Mr. Clark were to purchase this bond, would he be more likely to receive the yield to maturity or yield to call? Explain your answer. Because the YTM is expect the bond to be called. Consequently, he would earn
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