Question

​A(n) 10.0 ​%, ​25-year bond has a par value of​ $1,000 and a call price of ​$1 comma 050 . ​(The bond's first call date is in 5​ years.) Coupon payments are made semiannually​ (so use semiannual compounding where​ appropriate).

a. Find the current​ yield, YTM, and YTC on this​ issue, given that it is currently being priced in the market at $ 1 comma 175. Which of these 3 yields is the​ highest? Which is the​ lowest? Which yield would you use to value this​ bond? Explain.

b. Repeat the 3 calculations​ above, given that the bond is being priced at ​$825 . Now which yield is the​ highest? Which is the​ lowest? Which yield would you use to value this​ bond? Explain.

a. If the bond is priced at ​$1 comma 175 ​, the current yield is nothing ​%. ​(Round to two decimal​ places.) The annual​ yield-to-maturity with semiannual compounding is nothing ​%. ​(Round to two decimal​ places.) The annual​ yield-to-call with semiannual compounding is nothing ​%. ​(Round to two decimal​ places.) Which of these 3 yields is the​ highest? Which is the​ lowest?  ​(Select from the​ drop-down menus.) ▼ Yield-to-call Current yield Yield-to-maturity is the​ highest, while ▼ current yield yield-to-call yield-to-maturity is the lowest. Which yield would you use to value this​ bond?  

A. The​ yield-to-maturity is always used.

B. The​ yield-to-maturity because the bonds may not be called.

C. The​ yield-to-call because convention is to use the lower more conservative measure of yield.

D. It​ doesn't matter which yield you use. b. If the bond is priced at ​$825 ​, the current yield is nothing ​%. ​(Round to two decimal​ places.)

The annual​ yield-to-maturity with semiannual compounding is nothing ​%. ​(Round to two decimal​ places.)

The annual​ yield-to-call with semiannual compounding is nothing ​%. ​(Round to two decimal​ places.)

Which of these 3 yields is the​ highest? Which is the​ lowest. ▼ Current yield Yield-to-call Yield-to-maturity is the​ highest, while ▼ yield-to-maturity current yield yield-to-call is the lowest. Which yield would you use to value this​ bond? 

A. The​ yield-to-maturity because convention is to use the lower of​ yield-to-maturity or​ yield-to-call for bonds selling at a discount.

B. The​ yield-to-maturity because the bonds may not be called.

C. It​ doesn't matter which yield you use.

b. If the bond is priced at ​$825​, the current yield is nothing ​%. ​(Round to two decimal​ places.)

The annual​ yield-to-maturity with semiannual compounding is nothing ​%. ​(Round to two decimal​ places.)

The annual​ yield-to-call with semiannual compounding is nothing​%. ​(Round to two decimal​ places.)

Which of these 3 yields is the​ highest? Which is the​ lowest?  

Current yield

Yield-to-call

Yield-to-maturity

is the​ highest, while yield-to-maturity current yield yield-to-call is the lowest.

Which yield would you use to value this​ bond?  ​(Select the best answer​ below.)

A.The​ yield-to-maturity because convention is to use the lower of​ yield-to-maturity or​ yield-to-call for bonds selling at a discount.

B.The​ yield-to-maturity because the bonds may not be called.

C.It​ doesn't matter which yield you use.

D.The​ yield-to-maturity is always used.

Answer 1

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