Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? The probability of default is zero. The bond is callable. Consider the case of Eades Corp.: Eades Corp. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price Value is $1,010.35. However, Eades Corp. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Eades Corp.'s bonds? YTM YTC

Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? The probability of default is zero. The bond is callable. Consider the case of Eades Corp.: Eades Corp. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price Value is $1,010.35. However, Eades Corp. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Eades Corp.'s bonds? YTM YTC

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

See similar textbooks

Similar questions

A BBB-rated corporate bond has a yield to maturity of 13.2%. A U.S. Treasury security has a yield to maturity of 11.8%. These yields are quoted as APRS with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 12.7% and have 5 years to maturity. a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds?
The bond J is a bond with a coupon rate of 4%. The bond K is a bond with a coupon rate of 10%. Both bonds have a maturity of 8 years, make semi - annual payments, and have a yield to maturity of 9%. If interest rates suddenly increase by 2%, what is the percentage change in the price of these bonds? And if the rates suddenly decrease by 2%? What does this problem teach you about the interest rate risk of low - coupon bonds?
The real risk-free rate is 3 percent. Inflation is expected to average 2 percent a year for the next 3 years, after which the inflation is expected to average 3.5 percent a year. Assume that there is no maturity risk premium. A 7-year corporate bond has a yield of 7.6 percent. Assume that the liquidity premium on the corporate bond is 0.4 percent. What is the default risk premium on the corporate bond?
The rise and fall of a bond's price has a direct inverse relationship to its yield to maturity, or interest rate. As prices go up, the yield declines and vice versa. For example, a $1,000 bond might carry a stated annual yield, known as the coupon of 8%, meaning that it pays $80 a year to the bondholder. If that bond was bought for $870, the actual yield to maturity would be 9.2% ($80 annual interest on $870 of principal). Do you agree with this analysis? Briefly explain.
The real risk-free rate, r, is 1.3%. Inflation is expected to average 1.1% a year for the next 4 years, after which time inflation is expected to average 3.8% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 9.8%, which includes a liquidity premium of 0.4%. What is its default risk premium? Do not round Intermediate calculations. Round your answer to two decimal places.
The yield to maturity (YTM) on 1-year zero-coupon bonds is 5%, and the YTM on 2-year zeros is 6%. The YTM on 2-year-maturity coupon bonds with coupon rates of 12% (paid annually) is 5.8%.a. What arbitrage opportunity is available for an investment banking firm?b. What is the profit on the activity?
The real risk-free rate, r*, is 1.4%. Inflation is expected to average 1.2% a year for the next 4 years, after which time inflation is expected to average 4.3% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 10.7%, which includes a liquidity premium of 0.7%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.
For a one year holding period bond with no coupon payments, the interest rate is the same as the YTM which is the same as the return rate- true or false
Bond J has a coupon rate of 4.2 percent. Bond K has a coupon rate of 14.2 percent. Both bonds have ten years to maturity, a par value of $1,000, and a YTM of 9.4 percent, and both make semiannual payments. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Percentage change in price b. Percentage change in price Bond J % % Bond K do do % %
The real risk-free rate, r*, is 1.7%. Inflation is expected to average 1.4% a year for the next 4 years, after which time inflation is expected to average 4.4% a year. Assume that there is no maturity risk premium. A 9-year corporate bond has a yield of 11.0%, which includes a liquidity premium of 0.2%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places. 3.2 % Hide Feedback
The following table shows the prices of a sample of Treasury bonds, all of which have coupon rates of zero. Each bond makes a single payment at maturity. Years to Maturity Price (% of face value) 1 98.052% 2 94.551 3 90.744 4 86.680 What is the 1-year interest rate? What is the 3-year interest rate? What is the 4-year interest rate? Is the yield curve upward-sloping, downward-sloping, or flat? Is this the usual shape of the yield curve?
Consider a bond with a coupon of 7 percent, five years to maturity, and a current price of $1,025.30. Suppose the yield on the bond suddenly increases by 2 percent. a. Use duration to estimate the new price of the bond. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price b. Calculate the new bond price using the usual bond pricing formula. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS