A firm's bonds have a maturity of 14 years with a $1,000 face value, have an...

90.2K

Verified Solution

Question

Finance

A firm's bonds have a maturity of 14 years with a $1,000 facevalue, have an 8% semiannual coupon, are callable in 7 years at$1,074.44, and currently sell at a price of $1,137.92. What aretheir nominal yield to maturity and their nominal yield to call? Donot round intermediate calculations. Round your answers to twodecimal places.
What return should investors expect to earn on these bonds?
A. Investors would expect the bonds to be called and to earn theYTC because the YTC is greater than the YTM.
B. Investors would not expect the bonds to be called and to earnthe YTM because the YTM is greater than the YTC.
C. Investors would not expect the bonds to be called and to earnthe YTM because the YTM is less than the YTC.
D. Investors would expect the bonds to be called and to earn theYTC because the YTC is less than the YTM.
Part B:
Madsen Motors's bonds have 24 years remaining to maturity.Interest is paid annually, they have a $1,000 par value, the couponinterest rate is 7%, and the yield to maturity is 10%. What is thebond's current market price? Round your answer to the nearestcent.

Answer & Explanation Solved by verified expert

4.1 Ratings (499 Votes)

Hence yield to maturity is 649 3242Hence See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

A firm's bonds have a maturity of 14 years with a $1,000 facevalue, have an 8% semiannual coupon, are callable in 7 years at$1,074.44, and currently sell at a price of $1,137.92. What aretheir nominal yield to maturity and their nominal yield to call? Donot round intermediate calculations. Round your answers to twodecimal places.What return should investors expect to earn on these bonds?A. Investors would expect the bonds to be called and to earn theYTC because the YTC is greater than the YTM.B. Investors would not expect the bonds to be called and to earnthe YTM because the YTM is greater than the YTC.C. Investors would not expect the bonds to be called and to earnthe YTM because the YTM is less than the YTC.D. Investors would expect the bonds to be called and to earn theYTC because the YTC is less than the YTM.Part B:Madsen Motors's bonds have 24 years remaining to maturity.Interest is paid annually, they have a $1,000 par value, the couponinterest rate is 7%, and the yield to maturity is 10%. What is thebond's current market price? Round your answer to the nearestcent.