One year ago Clark Company issued a 10-year, 13% semiannual coupon bond at its p
ID: 2735517 • Letter: O
Question
One year ago Clark Company issued a 10-year, 13% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065, and it now sells for $1,230.
What is the bond's nominal yield to maturity? Round your answer to two decimal places.
%
What is the bond's nominal yield to call? Round your answer to two decimal places.
%
Would an investor be more likely to earn the YTM or the YTC?
-Select-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.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.Item 3
What is the current yield? (Hint: Refer to Footnote 7 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.
Explanation / Answer
use rate forrmulae in excel to fing ytm of the bond
=rate(nper,pmt,pv,fv,type,guess)
nper=10 years pmt=13%/2*1000=65(semi annual)
pv=-1230 fv=1000 type=0
=RATE(10,(13%/2*1000),-1230,1000,0,1)=3.71%
For annual it is 3.71%*2=7.41%
similarly for yield to call the nper changes and it is 6 years and fv changes and it is 1065
=RATE(6,(13%/2*1000),-1230,1065,0,1)=3.22%
annual it is 3.22%*2=6.44%
since ytm is greather than ytc bond will be called
curreent yield= coupon/price of bond
=130/1230=10.57%
option c is correct. current yield will remain same but the capital yield will differ if the bond is recalled
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