Bond had been selling at discount rather than premium

Assignment Help Financial Management
Reference no: EM131316390

Yield to call

It is now January 1, 2016, and you are considering the purchase of an outstanding bond that was issued on January 1, 2014. It has a 9.5% annual coupon and had a 20-year original maturity. (It matures on December 31, 2033.) There is 5 years of call protection (until December 31, 2018), after which time it can be called at 109-that is, at 109% of par, or $1,090. Interest rates have declined since it was issued, and it is now selling at 120.075% of par, or $1,200.75.

a. What is the yield to maturity? Round your answer to two decimal places. %

What is the yield to call? Round your answer to two decimal places. %

b. If you bought this bond, which return would you actually earn? Select the correct option.

I. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.

II. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.

III. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC.

IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.

V. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.

C. Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return, or would the yield to call have been most likely?

I. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC.

II. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.

III. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.

IV. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.

V. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.

Reference no: EM131316390

Questions Cloud

Plan the supply of the drug of the national health service : Plan the supply of the drug of the National Health Service taking into account the number of packages of the drug distributed in the last 20 days.
A firm recently paid annual dividend : A firm recently paid a $0.65 annual dividend. The dividend is expected to increase by 14 percent in each of the next four years. In the fourth year, the stock price is expected to be $50. If the required return for this stock is 16.50 percent, what i..
What is the implied one-year-ahead one-year forward rate : The one-year spot rate is 9 percent per year. The two-year spot rate is 9.5 percent per year. Why would you expect the one-year-ahead one-year forward rate f12 not to be 10 percent? Why would you expect the one-year-ahead one-year forward rate f12 no..
How health care is financed and services reimbursed : Incorporate the attributes of professionalism (altruism, autonomy, human dignity, integrity, and social justice) into professional nursing practice.Evaluate the benefits and limitations of how health care is financed and services reimbursed on he..
Bond had been selling at discount rather than premium : It is now January 1, 2016, and you are considering the purchase of an outstanding bond that was issued on January 1, 2014. It has a 9.5% annual coupon and had a 20-year original maturity. What is the yield to maturity? Suppose the bond had been selli..
Draw the demand curves for ggcs product in each market : Derive the demand curves for GGC's product in each market. Calculate algebraically for equilibrium P (price) and Q. Then, plot the MC (marginal cost),and MR (marginal revenue) curves graphically and illustrate the equilibrium point.
What age group suffers the most from this discrimination : Are obese men subject to the same levels of discrimination as obese women? Why or why not?What age group suffers the most from this discrimination? Why do you think it is so?What advice would you give a friend who struggles with obesity and obesity d..
What is the tax advantage to owner-occupancy of housing : Individuals A and B both have $75,000 of wage and salary income. In the absence of any housing consideration, they would each pay $20,000 in income tax. They are both in the 30 percent tax bracket. What is the tax advantage to owner-occupancy of hous..
Calculate the default risk premium on ten year bonds : NikkiG’s Corporation’s 10-year bonds are currently yielding a return of 6.60 percent. The expected inflation premium is 1.00 percent annually and the real risk-free rate is expected to be 3.20 percent annually over the next ten years. Calculate the d..

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd