Question

In: Finance

A bond with a face value of $1,000 matures in 12 years and has a 9...

A bond with a face value of $1,000 matures in 12 years and has a 9 percent semiannual coupon. The bond has a nominal yield to maturity of 6.85%, and it can be called in 4 years at a call price of $1,045. Assume equilibrium, which of the following statement is correct? (hint: what kind of bond is this?)

Select one:

a. The bond is currently traded at a discount.

b. The expected current yield will decrease.

c. All else equal, the price of the bond is expected to increase over time.

d. The bond is less likely to be called.

e. Bondholders are most likely to earn the YTC.

Solutions

Expert Solution

Since the YTM is lower than coupon rate, the bond is currently at premium.

Yield to Call (YTC) is assessed at 5.157676%. Since YTC is lower than YTM, the issuer is likely to exercise the call option. Hence the Bondholders are most likely to earn the YTC.

The answer is option e.

Calculation of YTC as below:


Related Solutions

A bond with a face value of $1,000 matures in 9 years and has a 7%...
A bond with a face value of $1,000 matures in 9 years and has a 7% semiannual coupon. The bond currently is traded at $920. Which of the following statements is CORRECT?
1. A 9% semiannual coupon bond matures in 4 years. The bond has a face value...
1. A 9% semiannual coupon bond matures in 4 years. The bond has a face value of $1,000 and a current yield of 8.9704%. a) What is the bond's price? Do not round intermediate calculations. Round your answer to the nearest cent. 2. What is the bond's YTM?  Do not round intermediate calculations. Round your answers to two decimal places.  
A $1,000 par value bond has a 9% annual coupon and matures in 5.50 years. If...
A $1,000 par value bond has a 9% annual coupon and matures in 5.50 years. If the current market interest rate on bonds of this type is 7% p.a., calculate this bond’s invoice price, accrued interest, and clean price.
A bond that matures in 12 years has a $1,000 par value. The annual coupon interest...
A bond that matures in 12 years has a $1,000 par value. The annual coupon interest rate is 11 percent and the market's required yield to maturity on a comparable-risk bond is 18 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually?
A zero coupon bond with a face value of $1,000 that matures in 8 years sells...
A zero coupon bond with a face value of $1,000 that matures in 8 years sells today for $556. What is the yield to maturity? (Use annual compounding.)
A bond with a face value of $1,000 and matures after 15 years is currently selling...
A bond with a face value of $1,000 and matures after 15 years is currently selling for $980. The semiannual coupon on the bond is $80 (paid in two payments of $40 each). Part a. Calculate the duration of the bond. Part b. Calculate the change in the price of the bond if interest rates increase by 0.25%
 Calculate the value of a bond that matures in 13 years and has a $ 1,000...
 Calculate the value of a bond that matures in 13 years and has a $ 1,000 par value. The annual coupon interest rate is 15 percent and the​ market's required yield to maturity on a​ comparable-risk bond is 12 percent. The value of the bond is? (round to the nearest cent)
2. Bond Valuation: You are analyzing a bond. The bond has a $1,000 face value, matures...
2. Bond Valuation: You are analyzing a bond. The bond has a $1,000 face value, matures in 10 years, and pays a 6.0% annual interest coupon payment. The bond pays interest semi-annually. a. What is the amount of interest (in dollars) you can expect to receive from this bond every six months? b. How many semiannual interest payments will you receive? c. If the bond sells for $1,025.00, what is the bond’s current yield to maturity (YTM)? Write your inputs...
An 8% semiannual coupon bond matures in 4 years. The bond has a face value of $1,000 and a current yield of 8.2287%.
An 8% semiannual coupon bond matures in 4 years. The bond has a face value of $1,000 and a current yield of 8.2287%. What are the bond's price and YTM? (Hint: Refer to Footnote 6 for the definition of the current yield and to Table 7.1) Do not round intermediate calculations. Round your answer for the bond's price to the nearest cent and for YTM to two decimal places.
a bond matures in Feb, 2020. it has a face value at $1,000. a 10% coupon...
a bond matures in Feb, 2020. it has a face value at $1,000. a 10% coupon paid semi-annually, and a required return of 12% per year. (compounded semi-annually). At what price should the bond sell today. (Use financial calculator in details, and simple solution)
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT