Question

​A(n) 10.0​%, 25-year bond has a par value of​ $1,000 and a call price of $1,125. (The bond's first call date is in 5​ years.) Coupon payments are made semiannually​ (so use semiannual compounding where​ appropriate).

1. Find the current​ yield, YTM, and YTC on this​ issue, given that it is currently being priced in the market at $1,250. Which of these 3 yields is the​ highest? Which is the​ lowest? Which yield would you use to value this​ bond? Explain.
2. Repeat the 3 calculations​ above, given that the bond is being priced at $900 Now which yield is the​ highest? Which is the​ lowest? Which yield would you use to value this​ bond? Explain.
3. If the bond is priced at $1,250​, the current yield is ___​%. (Round to two decimal​ places.)

The annual​ yield-to-maturity with semiannual compounding is ___​%. (Round to two decimal​ places.)

The annual​ yield-to-call with semiannual compounding is ___​%. (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 Or Yield-to-maturity Or Current yield is the​ highest, while

Yield-to-maturity or yield-to-call or current yield is the lowest.

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

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

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

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

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

b. If the bond is priced at $900 the current yield is ____​%. (Round to two decimal​ places.)

The annual​ yield-to-maturity with semiannual compounding is ___​%. (Round to two decimal​ places.)

The annual​ yield-to-call with semiannual compounding is ___​%. (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-maturity or Yield-to-call or Current yield is the​ highest, while

Yield-to-call or current yield or yield-to-maturity 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 is always used.

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

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

Answer 1