Question

A(n) 9.0 %, 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).

a. 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.

b. 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.

a. 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-maturity

Current yield

Yield-to-call

is the highest, while ▼

yield-to-call

current yield

yield-to-maturity

is the lowest.

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

A. It doesn't matter which yield you use.

B.The yield-to-maturity is always used.

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

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

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.)

▼

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 is always used.

B.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.

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

D.It doesn't matter which yield you use.

Click to select your answer(s).

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Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE