Santos energy has 9.5% annual coupon bonds outstanding with 15 years left until

Question

Santos energy has 9.5% annual coupon bonds outstanding with 15 years left until maturity. The bonds have a face value (FV) of $1,000 and their current market price (PV) is $1,111.76. what is the YTM on Santos’s bonds?

A). 10.82%

B). 7.43%

C). 10.45%

D). 8.18%

E). 9.74%

What is the current yield on Santos's outstanding bonds?

A). 10.22%

B). 10.51%

C). 8.35%

D). 9.94%

E). 8.55%

What is the expected capital gains yield on Santos's outstanding bonds?

A). -0.37%

B). 8.55%

C). 0.31%

D). 7.43%

E). 0.23%

Santos's bonds have a call provision that allows santos to call the bonds in 5 years at a call price of $1,040. What is the yield to call (YTC) on the bonds?

A). 11.35%

B). 12.84%

C). 10.64%

D). 9.95%

E). 7.43%

What rate of return can investors expect to earn on Santos's bonds if they purchase them today?

A). 12.84%

B). 8.18%

C). 7.9%

D). 7.43%

E). 6.85%

Explanation / Answer

1)TYM ={Interest +[(redemption price-issue price)/number of years] }/ [(redemption price +issue price)/2]

           ={95 +[(1000-1111.76)/15]}/[(1000+1111.76)/2]

        = {95+[-111.76/15]}/[2111.76/2]

        = {95-7.45}/1055.88

       =87.55/1055.88

        =.0823 or8 .29 % [8.18% approx due to point round off]

so correct option is "D" - 8.18% approx

2)Current yield = Interest /current market price

                      95 /1111.76

                   =.0855 or 8.55%

correct option is "E" =8.55%.

3)Capital gain yield = Total yield on bond -current yield

                             = 8.18% - 8.55%

                             = -.37%

correct option is"A" - -.37%

4)Yield to call ={Interest + [redemption price-issue price]/number of years }/[(redemption price+issue price)/2]

                   = {95 +[ (1040-1111.76)/5 }/[(1040+1111.76)/2]

                     ={95 -71.76/5} /[1075.88]

                     ={95-14.35}/1075.88

                      =80.65/1075.88

                     =.0750 or 7.50 % [due to decimal places]

correct option is"E" =7.43%

5)Yield to maturity is a return that investors gain if they purchase bond today .

so Rate of return = 8.18%

correct option = "B" - 8.18%

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