INTERMEDIATE FINANCIAL MANAGEMENT
12th Edition
ISBN: 9781305718265
Author: Brigham
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Chapter 4, Problem 22P
Yield to Maturity and Yield to Call
Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090).
- a. What is the yield to maturity?
- b. What is the yield to call if they are called in 5 years?
- c. Which yield might investors expect to earn on these bonds, and why?
- d. The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
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Yield to Maturity and Yield to Call
Arnot International's bonds have a current market price of $1,250. The bonds have an 12% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = 1,090).
What is the yield to maturity? Round your answer to two decimal places.%
What is the yield to call if they are called in 5 years? Round your answer to two decimal places.%
Which yield might investors expect to earn on these bonds, and why?-Select- I II III IV Item 3 Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.II. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.III. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.IV. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC.
The bond's…
Arnot International's bonds have a current market price of $1.200. The bonds hale an 11% annual coupon payment, a $1000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price= $1,090)a. What is the yield to maturity?b. What is the yield to call if they are called in 5 years?c. Which yield might investors expect to earn on these bonds, and why?d. The bond's indenture indicates that the call provision gives the firm the to call them at the end of each year beginning in Year 5. In Year 5, they may called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
Graystone bonds have a maturity value of $1,000. The bonds carry a coupon rate of 12%. Interest is
paid semiannually. The bonds will mature in 9 years. If the current market price is $976.50,
What is the yield to maturity on the bond?
b. What is the current yield on the bond?
а.
Chapter 4 Solutions
INTERMEDIATE FINANCIAL MANAGEMENT
Ch. 4 - Short-term interest rates are more volatile than...Ch. 4 - The rate of return on a bond held to its maturity...Ch. 4 - If you buy a callable bond and interest rates...Ch. 4 - A sinking fund can be set up in one of two ways....Ch. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Current Yield for Annual Payments Heath Food...Ch. 4 - Determinant of Interest Rates
The real risk-free...Ch. 4 - Default Risk Premium A Treasury bond that matures...Ch. 4 - Prob. 6P
Ch. 4 - Bond Valuation with Semiannual Payments
Renfro...Ch. 4 - Prob. 8PCh. 4 - Bond Valuation and Interest Rate Risk The Garraty...Ch. 4 - Prob. 10PCh. 4 - Prob. 11PCh. 4 - Bond Yields and Rates of Return A 10-year, 12%...Ch. 4 - Yield to Maturity and Current Yield You just...Ch. 4 - Current Yield with Semiannual Payments
A bond that...Ch. 4 - Prob. 15PCh. 4 - Interest Rate Sensitivity
A bond trader purchased...Ch. 4 - Bond Value as Maturity Approaches An investor has...Ch. 4 - Prob. 18PCh. 4 - Prob. 19PCh. 4 - Prob. 20PCh. 4 - Bond Valuation and Changes in Maturity and...Ch. 4 - Yield to Maturity and Yield to Call
Arnot...Ch. 4 - Prob. 23PCh. 4 - Prob. 1MCCh. 4 - Prob. 2MCCh. 4 - How does one determine the value of any asset...Ch. 4 - Prob. 4MCCh. 4 - What would be the value of the bond described in...Ch. 4 - Suppose a 10-year, 10% semiannual coupon bond with...Ch. 4 - Prob. 9MCCh. 4 - Prob. 10MCCh. 4 - Prob. 11MCCh. 4 - Prob. 12MCCh. 4 - Prob. 14MCCh. 4 - Prob. 15MCCh. 4 - Prob. 16MCCh. 4 - Prob. 17MC
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