Question

A(n) 8.0%, 20-year bond has a par value of $1,000 and a call price of $1,025. (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 $1,150. 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 $800. Now which yield is the highest? Which is the lowest? Which yield would you use to value this bond? Explain. 0 6. The yield-to-call because convention is to use me lower more conservative measure on yield. OD. The yield-to-maturity because the bonds may not be called. b. If the bond is priced at $800, 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? (Select from the drop-down menus.) is the highest, while Vis the lowest. Which yield would you use to value this bond? (Select the best answer below.) O A. The yield-to-maturity because the bonds may not be called. OB. 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 O C. The yield-to-maturity is always used. OD. It doesn't matter which yield you use. Click tomoloot our onworld

Answer 1

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12:12 W | © VO (a 1x ENG | 28-03-202024 ... o X 0247 X fc Formula Bar M. YEARS COUPON FACE VALUE 20 8.0% SEMI ANNUAL 1000 COUPON ($) 246 247 248 249 250 251 252 253 254 255 a 256 257 258 259 80 1150 PRICE CURRENT YIELD = 6.96% (=80/1150] = [COUPON/PRICE] YTM 3.32% EXCEL =RATE(L249*2,-L252/2,L253,-L251) 6.63% YTM ANNUAL 260 1025 261 262 263 264 265 CALL PRICE CALLABLE IN YEARS YTC YTC ANNUAL 2.51% EXCEL ERATE(L261*2,-L252/2,L253,-L260) 5.02% CURRENT YIELD IS THE HIGHEST, YTC IS THE LOWEST 266 267 C: YIELD TO CALL WILL BE USED BECAUSE THE CONVENTION IS TO USE THE LOWER MORE CONSERVATIVE MEASURE OF YIELD 268 269 20 YIELD SPOT YEARS AFN BANKING NOTE Sheet2 51 53 CLEAN PRICE $10 BIDDING, UNDERWRITING EUAC AW LIFE LP, IP, MRP, INFLATION WARR ... + 7

12:12 W E. | © VO (a 1x ENG No 28-03-2020 ... o 24 X J289 : x fx M 2016 268 269 270 20 8.0% 271 YEARS COUPON FACE VALUE COUPON ($) PRICE 1000 80 800 272 273 274 275 b 276 277 278 CURRENT YIELD = 10.00% (=80/800] = [COUPON/PRICE] YTM YTM 5.20% EXCEL =RATE(L269*2,-L272/2,L273,-L271) 10.39% ANNUAL 1025 280 281 CALL PRICE CALLABLE IN YEARS YTC 282 283 7.03% EXCEL =RATE(L281*2,-L272/2,L273,-L280) 14.06% үTC ANNUAL 284 285 YTC IS THE HIGHEST, CURRENT YIELD IS THE LOWEST 286 287 B: YIELD TO MATURITY WILL BE USED BECAUSE THE CONVENTION IS TO USE THE LOWER OF YTM OR YTC FOR BONDS SELLING AT DISCOUNT 288 289 290 291 a YIELD SPOT AFN BANKING NOTE Sheet2 51 53 CLEAN PRICE $10 BIDDING, UNDERWRITING EUAC AW LIFE LP, IP, MRP, INFLATION WARR ... + 7