One year ago Clark Company issued a 10year 12 seria nnual co

One year ago Clark Company issued a 10-year, 12% seria nnual coupon bond at ts par value of S 1,000. Currently, the bond can be caled in 6 yearsat a pree on i 060 and e now sells for $1,300 a. What is the bond\' 7.38 0 s nominal yield to maturity? Round your answer to two decimall places. What is the bond\'s nominal yield to call? Round your answer to two decimal places. 6.68 0% Would an investor be more likely to earn the YITM or the YTC Since the YTH is above the YIC, the bond is likely to be colled b. What is the current yield? 0int: Refer to Foothnote 7 for the delfinition of the current yield and to Table 7.1.) Round your answer to two decimal places. 9.23 O% 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. IL. If the bond is called, the capital gains yield will remain the same but the current yield will be different 1I. If the bond is called, the current yield and the capital gains vield will both be different. IV. If 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 vield will remain the same but the capital gains vield will be different. ReadS c What is the expected capital gains (or loss) vicks for the coming year? Round your answer to two deomal places. 3

Solution

If the bond will not be called. Expected capital gain yield=

YTM = Current yield + Capital gains (loss) yield

7.38 = 9.23 + Capital gains (loss) yield

= -1.85%

If the bond will be called. Expected capital gain yield=

YTC - Current yield

=6.68%-9.23%

=-2.55%