As of March 23, 2017, the yield to maturity on one year U.S. Treasury Bills is...

50.1K

Verified Solution

Question

Finance

As of March 23, 2017, the yield to maturity on one year U.S.Treasury Bills is just 0.96%. You mention to your broker yourfrustration at only earning such a low interest rate. The brokerresponds by informing you that he can get you into bonds issued byShadyVentures Inc. that promise much better returns. In particular,the ShadyVenture Bonds pay 6.5% annual coupon interest (on asemi-annual basis, as is typical) on face value of $1000 each, arescheduled to mature on March 23, 2037, and are rated B by bothMoodys and S&P. He can get you into these bonds for a price of$920 per bond. (a) What is the yield-to-maturity on theShadyVenture Bonds? (b) Unless your computations are far off base,you should verify that ShadyVenture bonds have a higher yield tomaturity than U.S. Treasury Bills. Identify two reasons or risksthat the ShadyVenture bonds might not be the better investmentdespite their higher yield.

Answer & Explanation Solved by verified expert

4.2 Ratings (749 Votes)

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

As of March 23, 2017, the yield to maturity on one year U.S.Treasury Bills is just 0.96%. You mention to your broker yourfrustration at only earning such a low interest rate. The brokerresponds by informing you that he can get you into bonds issued byShadyVentures Inc. that promise much better returns. In particular,the ShadyVenture Bonds pay 6.5% annual coupon interest (on asemi-annual basis, as is typical) on face value of $1000 each, arescheduled to mature on March 23, 2037, and are rated B by bothMoodys and S&P. He can get you into these bonds for a price of$920 per bond. (a) What is the yield-to-maturity on theShadyVenture Bonds? (b) Unless your computations are far off base,you should verify that ShadyVenture bonds have a higher yield tomaturity than U.S. Treasury Bills. Identify two reasons or risksthat the ShadyVenture bonds might not be the better investmentdespite their higher yield.