1. XYZ Corporation issued a 5-year bond with a par value of P25,000 and pays a semi-annual coupon ofP1,250. The nominal yield would be?a. 7%d. 12%2. Currently, banks would offer an ordinary savings interest rate of 1% per annum. Additionally,inflation rate is expected to be 3.5%. You are considering a current bond issue in which yourassessment gives a default risk premium of 2%, liquidity premium of 3% and market risk premium of2.5%. Your required rate of return would be:а. 10%d. 13%3. (Using information in numbers 1 and 2). The price of the bond would be closest to:a. P 20,710d. P 24,058c. 11%f. 14%b. 10%е. 13%b. 11%c. 12%f. 15%e. 14%b. P 25,000e. P21,488с. Р 22,304f. P 23,160

Bonds are the liabilities of the company which is issued to raise the funds required to finance the…

Answered: XYZ Corporation issued a 5-year bond…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 16P

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Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?
Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?

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XYZ Corporation issued a 5-year bond with a par value of P25,000 and pays a semi-annual coupon of P1,250. The nominal yield would be? 7% a. b. 10% c. 11% d. 12% е. 13% f. 14%