Prepare a spreadsheet using Excel or a similar program in which you compute the items listed...

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Finance

Prepare a spreadsheet using Excel or a similar program in whichyou compute the items listed in parts a, b, and d. Be sure tocompute the Yield-to-Maturity (YTM) and Yield-to-Call (YTC) foreach of years 5, 6, 7, 8, and 9.
Kaufman Enterprises has bonds outstanding with a $1,000 facevalue and 10 years left until maturity. They have an 11% annualcoupon payment, and their current price is $1,185. The bonds may becalled in 5 years at 109% of face value (Call price = $1,090). a.What is the yield to maturity? b. What is the yield to call if theyare called in 5 years? c. Which yield might investors expect toearn on these bonds? Why? d. The bond’s indenture indicates thatthe call provision gives the firm the right to call the bonds atthe end of each year beginning in Year 5. In Year 5, the bonds maybe called at 109% of face value; but in each of the next 4 years,the call percentage will decline by 1%. Thus, in Year 6, they maybe called at 108% of face value; in Year 7, they may be called at107% of face value; and so forth. If the yield curve is horizontaland interest rates remain at their current level, when is thelatest that investors might expect the firm to call the bonds?

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3.6 Ratings (428 Votes)

a YIELD TO MATURITY Face value of bond 1000 Nper Number of years to maturity 10 Pmt Annual Coupon payment100011 110 Pv Current market Price 1185 Fv Payment at maturity 1000 RATE Yield to maturity 822 Using RATE See Answer

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Prepare a spreadsheet using Excel or a similar program in whichyou compute the items listed in parts a, b, and d. Be sure tocompute the Yield-to-Maturity (YTM) and Yield-to-Call (YTC) foreach of years 5, 6, 7, 8, and 9.Kaufman Enterprises has bonds outstanding with a $1,000 facevalue and 10 years left until maturity. They have an 11% annualcoupon payment, and their current price is $1,185. The bonds may becalled in 5 years at 109% of face value (Call price = $1,090). a.What is the yield to maturity? b. What is the yield to call if theyare called in 5 years? c. Which yield might investors expect toearn on these bonds? Why? d. The bond’s indenture indicates thatthe call provision gives the firm the right to call the bonds atthe end of each year beginning in Year 5. In Year 5, the bonds maybe called at 109% of face value; but in each of the next 4 years,the call percentage will decline by 1%. Thus, in Year 6, they maybe called at 108% of face value; in Year 7, they may be called at107% of face value; and so forth. If the yield curve is horizontaland interest rates remain at their current level, when is thelatest that investors might expect the firm to call the bonds?