Question

4.

YIELD TO MATURITY A firm's bonds have a maturity of 14 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 7 years at $1,065, and currently sell at a price of $1,122.74. a. What is their nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. 6.64 % b. What is their nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places. 6.82 % c. What return should investors expect to earn on these bonds? I. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. II. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC. III. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. IV. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. V. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. va

Answer 1

b)

Function Arguments RATE Nper 7*2 14 80/2 Pmt 40 Pv -1122.74 -1122.74 1065 1065 Fv Туре 0 0.032671328 Returns the interest rate per period of a loan or an investment. For example, use 6%/4 for quarterly payments at 6% APR. Type is a logical value: payment at the beginning of the period 1; payment at the end of the period 0 or omitted Formula result = 3.27% Help on this function ок Cancel II

Hence, Bond yield to call is 6.53%

c)

Correct option is I

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