BOND YIELDS Last year Carson ndustries issued a 10year 13 se

BOND YIELDS Last year Carson ndustries issued a 10-year, 13% semiannual coupon bond at its par value of $1 O Currently the bond can be called in 6 years at a price of S 06 and sells for S a. What is the bond\'s nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. 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? 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 current yield and the capital gains yield will remain the same. . Ir the bond is cailed, the capital gains yield will rmain the same but the current yield will be different III. If the bond is called, the current yield and the capital gains yield will both be different. IV, Ir the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different. V. If the bond is called, the current yield will remain the same but the capital gains yield will be different. Select- c. What is the expected capital gains (or loss) yield for the coming year? Use amounts calculated in above requirements for calcuation, if reqired. Round your answer to two decimal places. Enter a loss percentage, if any, with a minus sign. Is this yield dependent on whether the bond is expected to be called? I. 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. 11, r the bond is expected to be called, the appropriate expected total return is the YTM. III. If the bond is not expected to be called, the appropriate expected total return is the YTC. IV. If the bond is expected to be called, the appropriate expected total return will not change V. The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called Session 59:23

Solution

1. The yield to maturity of the bond is calculated as =rate(nper,pmt,pv,fv) nper = 10*2 =20,pmt =130/2=65,pv=-1230 and fv =1000 So semi annual YTM =rate(20,65,-1230,1000) = 4.70% Annual Yield to matuiry (YTM) = 9.402% 2. Yield to call =rate(nper,pmt,pv,fv) nper = 6*2 =12,pmt =130/2=65,pv=-1230 and fv =1065 Semi annual YTC =rate(12,65,-1230, 1065) = 4.413% Annual Yield to Call (YTC) = 4.413*2 = 8.8254% 3. Since YTM is above YTC, the bond is likely to be called (option C) 4. Current Yield = Annual Cuopon/Current Price = 130/1230 = 10.569% 5.If the bond is called, the current yield will remain the same but the capital gains yield will be different. Note: We have answered 5 sub-parts. Please post remaining seperately