Question

1. Bond yields Aa Aa E Coupon payments are fixed, but the percentage return 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? The bond is callable. The probability of default is zero. Consider the case of RTE Inc.: Value RTE Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,220.35. However, RTE 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 RTE Inc.'s bonds? YTM YTC 7.64% 6.91% 6.05% 8.55% If interest rates are expected to remain constant, what is the best estimate of the remaining life bonds? O O O O 8 years 18 years 13 years 5 years If RTE Inc. issued new bonds today, what coupon rate must the bonds have to be issued at par?

Answer 1

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1 Ale w 2 * 02-22 ENG 24-02-2020 24 A821 X fi А 1000 9% 90 801 802 RTE INC 803 ANSWER 804 805 806 807 808 809 810 811 812 THE PROBABILITY OF DEFAULT IS ZERO FACE VALUE COUPON COUPON ($) YEARS CURRENT PRICE CALLABLE IN : YEARS CALLABLE IN 8 YEARS AT YTM YTC 18 1220.35 1060 6.84% (=RATE(C807,-C806,C808,-C804)] 6.05% (=RATE(C809,-C806,C808,-C810)] 813 AS YTC <YTM, BONDS WILL BE CALLED IN 8 YEARS BEST ESTIMATE OF THE REMAINING LIFE LEFT = 8 YEARS YTM IS THE RATE WHICH WILL BE APPLICABLE RATE COUPON RATE = 6.84% 814 815 816 ANSWER 817 818 ANSWER 819 820 821 822 823 824 YIELD SPOT AFN BANKING NOTE Sheet2 51 53 CLEAN PRICE $10 BIDDING, UNDERWRITING EUAC AW LIFE LP, IP, MRP, INFLATION WARR... :