oqizpqu2 acton-takeQuiz&quiz; probGuid-ONAPCOA801010000002a0360d0070000&ct; 8. B
ID: 2382542 • Letter: O
Question
oqizpqu2 acton-takeQuiz&quiz; probGuid-ONAPCOA801010000002a0360d0070000&ct; 8. Bond yields As Aa Coupon payments are fixed, but the percentage return that investors receive percentage return is referred to as the bond's yield. varies based on market conditions. Thi 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 o the following is one of these assumptions? O The bond has an early redemption feature. O The bond will not be called. Consider the case of Blanche Inc Blanche 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 $950.35. However, Blanche Inc. may call the bonds in eight years at a call price of Value YTM YTC $1,060. What are the YTM and yield to call (YTC) on Blanche Inc.'s bonds? if interest rates are expected to remain constant, w Inc.'s bonds? ir interest rates are expected to remain constant, what is the best estmate of the remaining life let for Blanche O 10 ycars O 8 years O 18 years O 13 years t Blanche Inc. issued new bonds today, what coupon rate must the bonds have to be issued at par? 7.53% 9.59% 9,35% Attempts, .iaExplanation / Answer
Solution-1
The bond will not be called
Explanation-
The YTM equals the expected rate of return only if...........
Solution-2
YTM: N = 18, PV = -950.35, PMT = 90, FV = 1,000 I = 9.59%
YTC: N = 8, PV = -950.35, PMT = 90, FV = 1,060 I = 9.35%
Solution-3
8 Years
Solution-4
9.35%
Explanation-
The yield to maturity on blanche inc existing bond reflect the rate of return required by the investor for holding the debt securities issue by the blanche inc. If blanche inc is to issue new bond at par than the new bond must pay a coupon equal to their yield to maturity 9.59%.
So, the new bond also have yield to maturity 9.59%.
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