Question

dit View History Bookmarks People Tab Window Help nline Funny Momen linois State University: FIL 24 x X MindTap - Cengage Learning X engage.com/static/nb/ui/evo/index.html?deploymentld-590512289323369805300623808&elSBN-97803571 CENGAGE MINDTAP Ch 07: Assignment- Bonds and Their Valuation 5. Bond yields Coupon payments are fixed, but the percentage retum that investors receive varies based on market conditions. This percentage return is referred to as the bond's yield. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? O The bond is callable O The probability of default is zero. Consider the case of Blanche Inc.: Blanche Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bends have a par value of $1,000, and their current market price is $1,100.35. However, Blanche Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Blanche Inc.'s bonds? Value YTM YTC If interest rates are expected to remain constant, what is the best estimate of the remaining lfe left for Blanche Inc.'s bonds? O 10 years O8 years O 13 years O 5 yearsS If Blanche Inc. issued new bonds today, what coupon rate must the bonds have to be issued at par? W S 9 X

Answer 1

a) The probability of default is zero

b) YTM:-

=RATE(18,9%*1000,-1100.35,1000)

=7.93%

YTC:-

=RATE(8,9%*1000,-1100.35,1060)

=7.83%

c) 8 years

d) 7.93%