Question

​A(n) 10.5​%, ​25-year bond has a par value of​ $1,000 and a call price of ​$1 comma 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 comma 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? 

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

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

D. The​ yield-to-maturity is always used. b. If the bond is priced at ​$900​, the current yield is nothing​%. ​(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?  ​(

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

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

D. 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.

Answer 1