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 bond is callable. O The probability of default is zero.
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 bond is callable. O The probability of default is zero.
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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Question
Transcribed Image Text:Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to
as the bond's yield.
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?
O The bond is callable.
O The probability of default is zero.
Consider the case of Demed Inc.:
Demed Inc. 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 is $950.35. However, Demed Inc. 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 Demed Inc.'s bonds?
Value
YTM
YTC
If interest rates are expected to remai constant, what is the best estimate of the remaining life left for Demed Inc.'s bonds?
O 5 years
O 13 years
O 18 years
O 8 years
If Demed Inc. issued new bonds today, what coupon rate must the bonds have to be issued at par?
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