7.11
Last year Carson Industries issued a 10-year, 14% semiannual
coupon bond at its par value of $1,000. Currently, the bond can be
called in 6 years at a price of $1,060 and it sells for $1,300.
- What are the bond's nominal yield to maturity and its nominal
yield to call? Do not round intermediate calculations. Round your
answers to two decimal places.
YTM: %
YTC: %
Would an investor be more likely to earn the YTM or the YTC?
-Select-Since the YTM is above the YTC, the bond is likely to be
called.Since the YTC is above the YTM, the bond is likely to be
called.Since the YTM is above the YTC, the bond is not likely to be
called.Since the YTC is above the YTM, the bond is not likely to be
called.Since the coupon rate on the bond has declined, the bond is
not likely to be called.Item 3
- What is the current yield? (Hint: Refer to Footnote 6 for the
definition of the current yield and to Table 7.1) Round your answer
to two decimal places.
%
Is this yield affected by whether the bond is likely to be
called?
- If the bond is called, the capital gains yield will remain the
same but the current yield will be different.
- If the bond is called, the current yield and the capital gains
yield will both be different.
- If the bond is called, the current yield and the capital gains
yield will remain the same but the coupon rate will be
different.
- If the bond is called, the current yield will remain the same
but the capital gains yield will be different.
- If the bond is called, the current yield and the capital gains
yield will remain the same.
-Select-IIIIIIIVVItem 5
- What is the expected capital gains (or loss) yield for the
coming year? Use amounts calculated in above requirements for
calculation, if required. Negative value should be indicated by a
minus sign. Round your answer to two decimal places.
%
Is this yield dependent on whether the bond is expected to be
called?
- The expected capital gains (or loss) yield for the coming year
does not depend on whether or not the bond is expected to be
called.
- If the bond is expected to be called, the appropriate expected
total return is the YTM.
- If the bond is not expected to be called, the appropriate
expected total return is the YTC.
- If the bond is expected to be called, the appropriate expected
total return will not change.
- The expected capital gains (or loss) yield for the coming year
depends on whether or not the bond is expected to be called.
-Select-IIIIIIIVVItem 7