Which yield might investors expect to earn on these bonds

Assignment Help Business Economics

Reference no: EM131166872

Kaufman enterprises has bonds outstanding with a $1,000 face value and 10 years left until maturity. They have an 11% annual coupon payment, and their current price is $1,175. The bonds may be called in 5 years at 109% of face value (Call price = $1,090).

a. What is the yield maturity?

b. What is the yield to call if they are called in 5 years?

c. Which yield might investors expect to earn on these bonds? Why?

d. The bonds’ indenture indicates that the call provision gives the firm the right to call the bonds at the end of each year beginning in Year 5. In Year 5, the bonds may be call at 109% of face value; but in each of the following 4 years, the call percentage will decline by 1%. Thus, in Year 6, they may be called at 108% of face value; in year 7, they may be called at 107% of face value; and so forth. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?

Reference no: EM131166872

Questions Cloud

Explain how this might affect us trade deficit with japan : In trade negotiations with the Japanese over the large US trade deficit with Japan, the US administration has urged the Japanese government to undertake a more expansionary fiscal policy. Explain how this might affect the US trade deficit with Jap..

Report on the operating effectiveness of those controls : Section 404 of the Sarbanes-Oxley Act of 2002 requires that management of public companies take responsibility for establishing and maintaining the entity's internal control. Management is also required by Section 404 to publicly report on the ope..

Describe the educational setting: staff development : Describe the educational setting: staff development, patient education, family education, and so forth. Include learner assessments: educational level, developmental level, readiness to learn, and so forth.

Computes the product of the two bit integers : When NAND or NOR gates are used to represent circuits, no other types of gates are needed. The notation for these gates is as follows:

Which yield might investors expect to earn on these bonds : Kaufman enterprises has bonds outstanding with a $1,000 face value and 10 years left until maturity. They have an 11% annual coupon payment, and their current price is $1,175. The bonds may be called in 5 years at 109% of face value (Call price = $1,..

Discuss changes that you would make to your local budget : Discuss changes that you would make to your local, state, or national budget based on the economic issue addressed in this article. If you feel no changes are necessary, explain how the current budget influences the circumstances in the article.

What is the best estimate of these bonds remaining life : Lloyd Corporation’s 14% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 30 years, are callable 5 years from today at $1,050. They sell at a price of $1,353.54, and the yield curve is flat. Assume that interest rates are expec..

How health care disparities impact treatment decisions : Explain how health care disparities impact treatment decisions. Identify the health care policies that are in place that direct care for uninsured individuals. Is there a difference in how these individuals are triaged?

What is the probability of the investors total return : An investor has invested in nine different investments.- What is the probability that the investor's total return is between $400,000 and $520,000?-

User Account

All Pages