A firm\'s bonds have a maturity of 14 years with a $1,000 face value, have an 11
ID: 2730919 • Letter: A
Question
A firm's bonds have a maturity of 14 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 7 years at $1,229, and currently sell at a price of $1,393.51.
What is their nominal yield to maturity? Round your answer to two decimal places.
%
What is their nominal yield to call? Round your answer to two decimal places.
%
What return should investors expect to earn on these bonds?
a. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC.
b. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
c. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
d. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
e. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
Explanation / Answer
Correct option is e. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
Face value (FV) $ 1,000 Coupon rate 11.00% Number of compounding periods per year 2 Interest per period (PMT) $ 55.00 Bond price (PV) $ (1,393.51) Number of years to maturity 14 Number of compounding periods till maturity (NPER) 28 Bond Yield to maturity RATE(NPER,PMT,PV,FV)*2 Bond Yield to maturity 6.64%Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.