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  3. a firm's bonds have a maturity of 8 years with a $

A firm's bonds have a maturity of 8 years with a $1,000 face value, have an...

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Accounting

A firm's bonds have a maturity of 8 years with a $1,000 facevalue, have an 11% semiannual coupon, are callable in 4 years at$1,142, and currently sell at a price of $1,261.56.

  1. What is their nominal yield to maturity? Round your answer totwo decimal places.

    %
  2. What is their nominal yield to call? Round your answer to twodecimal places.

    %
  3. What return should investors expect to earn on thesebonds?
    1. Investors would expect the bonds to be called and to earn theYTC because the YTC is greater than the YTM.
    2. Investors would not expect the bonds to be called and to earnthe YTM because the YTM is greater than the YTC.
    3. Investors would not expect the bonds to be called and to earnthe YTM because the YTM is less than the YTC.
    4. Investors would expect the bonds to be called and to earn theYTC because the YTC is less than the YTM.
    5. Investors would expect the bonds to be called and to earn theYTC because the YTM is less than the YTC.

    -Select-IIIIIIIVV

Answer & Explanation Solved by verified expert
4.1 Ratings (572 Votes)

1
Face value (FV) 1000
Coupon rate 11.00%
Number of compounding periods per year                                                     2
Interest per period (PMT) (1000*11%/2) 55
Bond price (PV) 1261.56
Number of years to maturity 8
Number of compounding periods till maturity (NPER) 16
Bond yield to maturity RATE(NPER,PMT,PV,FV)*2
Bond yield to maturity 6.72%
2
Call price (Here it is FV) 1142
Coupon rate 11.00%
Number of compounding periods per year 2
Interest per period (PMT) 55
Bond price (PV) -1261.56
Number of years to call (NPER) 4
Bond Yield to call RATE(NPER,PMT,PV,FV)*2
Bond Yield to call 6.61%
3
IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.

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