Question

A(n) 9.0 %, 25-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.

a. *If the bond is priced at $1,150 the current yield is nothing. ___% (Round to two decimal places.)

*The annual yield-to-maturity with semiannual compounding is nothing.___ %

*The annual yield-to-call with semiannual compounding is nothing .___% (Round to two decimal places.)

*Which of these 3 yields is the highest? Which is the lowest?

*Which yield would you use to value this bond?

A. The yield-to-call because convention is to use the lower more conservative measure of yield.

B. It doesn't matter which yield you use.

C. The yield-to-maturity is always used.

D. The yield-to-maturity because the bonds may not be called.

b.* If the bond is priced at $800 , the current yield is nothing .___% (Round to two decimal places.)

*The annual yield-to-maturity with semiannual compounding is nothing .___% (Round to two decimal places.)

*The annual yield-to-call with semiannual compounding is nothing .___% (Round to two decimal places.)

*Which of these 3 yields is the highest? Which is the lowest?

*Which yield would you use to value this bond?

A. 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.

B. The yield-to-maturity because the bonds may not be called.

C. The yield-to-maturity is always used.

D. It doesn't matter which yield you use.

Answer 1