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t is now January 1, 2021, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019. It has a 9.5% annual coupon and had a 30-yea riginal maturity. (It matures on December 31, 2048.) There is 5 years of call protection (until December 31, 2023), after which time it can be called at 108–that is, at 08% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 116.57% of par, or $1,165.70. .What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % If you bought this bond, which return would you actually earn? I. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. II. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. III. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. IV. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. -Select- : Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return, or would the yield to call have beer most likely? I. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. II. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. III. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. -Select-

t is now January 1, 2021, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019. It has a 9.5% annual coupon and had a 30-yea riginal maturity. (It matures on December 31, 2048.) There is 5 years of call protection (until December 31, 2023), after which time it can be called at 108–that is, at 08% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 116.57% of par, or $1,165.70. .What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % If you bought this bond, which return would you actually earn? I. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. II. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. III. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. IV. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. -Select- : Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return, or would the yield to call have beer most likely? I. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. II. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. III. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. -Select-

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 11P
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It is now January 1, 2021, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019. It has a 9.5% annual coupon and had a 30-year original maturity. (It matures on December 31, 2048.) There is 5 years of call protection (until December 31, 2023), after which time it can be called at 108–that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 116.57% of par, or $1,165.70. a. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % b. If you bought this bond, which return would you actually earn? I. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. II. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. III. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. IV. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. -Select- + c. Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return, or would the yield to call have been most likely? I. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. II. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. III. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. -Select- +
Transcribed Image Text:It is now January 1, 2021, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019. It has a 9.5% annual coupon and had a 30-year original maturity. (It matures on December 31, 2048.) There is 5 years of call protection (until December 31, 2023), after which time it can be called at 108–that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 116.57% of par, or $1,165.70. a. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % b. If you bought this bond, which return would you actually earn? I. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. II. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. III. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. IV. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. -Select- + c. Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return, or would the yield to call have been most likely? I. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. II. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. III. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. -Select- +
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