Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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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).

  1. a. What is the yield to maturity?
  2. b. What is the yield to call if they are called in 5 years?
  3. c. Which yield might investors expect to earn on these bonds, and why?
  4. 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.

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Intermediate Financial Management (MindTap Course List)

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