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BOND YIELDS Last year Carson Industries issued a 10-year, 13% semiannual coupon bond at its partial differential value of $1,000. Currently, the bond can be called in 6 year at a price of $1,065 and its sells for $1,200. a. What are the bond’s nominal yield to maturity and its nominal yield to call? Would an investor be more likely to earn YTM or the YTC? b. What is the current yield? Is this yield affected by whether the bond is likely to be called? (Hint: Refer to footnote 6 for the definition of the current yield and to Table 7.1.) c. What is the expected capital gains (or loss) yield for the coming year? Is this yield dependent on whether the bond is expected to be called? Explain your answer.

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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

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Chapter
Section
Chapter 7, Problem 11P
Textbook Problem

BOND YIELDS Last year Carson Industries issued a 10-year, 13% semiannual coupon bond at its partial differential value of $1,000. Currently, the bond can be called in 6 year at a price of $1,065 and its sells for $1,200.

  1. a. What are the bond’s nominal yield to maturity and its nominal yield to call? Would an investor be more likely to earn YTM or the YTC?
  2. b. What is the current yield? Is this yield affected by whether the bond is likely to be called? (Hint: Refer to footnote 6 for the definition of the current yield and to Table 7.1.)
  3. c. What is the expected capital gains (or loss) yield for the coming year? Is this yield dependent on whether the bond is expected to be called? Explain your answer.

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Chapter 7 Solutions

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