Question

Check My Work (No more tries available) eBook of face Kempton 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 $1,170. The bonds may be called in 5 years at 109 value (Call price = $1,090). a. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places 8.35 b. What is the yield to call if they are called in 5 years? Do not round intermediate calculations. Round your answer to two decimal places 9.04 03 c. Which yield might investors expect to earn on these bonds? Why? 1. Investors would not expect the bonds to be called and to earn the YTM because the YT is greater than the YTC. II. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. TIL. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. d. The bond's 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 called at 109% of face value, but in each of the next 4 years, the call percentage will dedine by 14. Thus, in Year 6, they may be called at 108% of face value in Year 7. they may be called at 197% of face value and so forth. If the yield curveis horizontal and interest rates remain at their current level when the latest that investors might expect the firm to call the bonds? Do not round intermediate calculations Partially Correct Check My Work (No more tries available)

Answer 1

Solving for the incorrect parts:

b. YTC = 8.24%

NPER	5
FV	1090
PMT	110.00	[1000*11%]
PV	1170.00
		1.001
Rate	8.24%	[Rate ( nper, pmt,-pv,fv)]

d. Year 7

Reason: The YTC in year 7 is the highest for the investor hence will except the same.

Calculation:

NPER	7
FV	1070
PMT	110.00
PV	1175.00
Rate	8.37%	[Rate ( nper, pmt,-pv,fv)]