BOND YIELDS Last year Carson Indus tres ? ued a 10-year, 15% semiannual coupon b
ID: 2614798 • Letter: B
Question
BOND YIELDS Last year Carson Indus tres ? ued a 10-year, 15% semiannual coupon bond at its par value of and it sells for $1,180. a. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. $1,000. Currently, the bond can be called in 6 years at a price of $1,075 What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places Would an investor be more likely to earn the YTM or the YTC? Select b. 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? I. If the bond is called, the capital gains yield will remain the same but the current yield will be different II. If the bond is called, the current yield and the capital gains yield will both be different III. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different. IV. If the bond is called, the current yield will remain the same but the capital gains yield will be different V. If the bond is called, the current yield and the capital gains yield will remain the same. c. What is the expected capital gains (or loss) yield for the corming year? Use amounts calculated in above requirements for calcuation, if reqired. Round your answer to two decimal places. Enter a loss percentage, i any, with a minus sign Is this yield dependent on whether the bond is expected to be called 1. The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called. II. The expected capital gains (or loss) yield for the coming year does not depend on whether or not the bond is expected to be called If the bond is expected to be called, the appropriate expected total return is the YTM. IV. If the bond is not expected to be called, the appropriate expected total return is the YTC. V. If the bond is expected to be called, the appropriate expected total return will not change. III. Select-I Check My Work (3 remaining)Explanation / Answer
a Yield to maturity b Bond current yield FV 1000 150/1180 PV 1180 12.71% PMT 75 (1000 x 15%/2) IV If the bond is called, the current yield will remain the same but the capital gains yield will be different. NPER 18 (9 x 2) YTM 11.71% c Bond Capital gain or loss yield =RATE(18,75,-1180,1000)*2 YTM - Current Yield 11.71%-12.71% -1.00% Yield to call I The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called. FV 1075 Call price PV 1180 PMT 75 (1000 x 15%/2) NPER 12 (6 x 2) YTM 11.65% =RATE(12,75,-1180,1075)*2 Since the YTM is above the YTC, the bond is likely to be called
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