What is the bond yield to call

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Reference no: EM132235121

Answering the following questions using cash flow method with financial calculator.

  1. What is the value of a 5-year, $1,000 par value bond with a 9 percent annual coupon if its required annual rate of return is 10 percent? Does the bond sell at par?
  2. What would happen to the value of the above 5-year bond over time if the required annual rate of return remained at 10 percent?
  3. What is the yield to maturity (YTM) on a 10-year, 9 percent annual coupon, $1,000 par value bond that sells for $1,050?
  4. Suppose a 10-year, 10 percent, semiannual coupon bond with a par value of $1,000 is currently selling for $1,135.90, producing a yield to maturity (YTM) of 8 percent. However, the bond can be called after 5 years for a price of $1,025.
  5. What is the bond's yield to call (YTC)?
  6. If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?

Reference no: EM132235121

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