Question
A firms outstanding bonds have a $1,000 par value, are investment grade and mature in 6 years. These bonds pay interest semiannually with a coupon
A firms outstanding bonds have a $1,000 par value, are investment grade and mature in 6 years. These bonds pay interest semiannually with a coupon of 8.0%. Assume that bond sells for $955.00.
(a) What is the Yield-to-Maturity (YTM) bond?
(b) What is the bonds Current Yield?
(c) What is the bonds Capital Gains Yield?
(d) Now, suppose the bond is trading at $1,150 and that the bond is callable in 2 years from now, at a call premium of 4% ($40.00). What is the Yield-to-Call (YTC)? Would you expect your return to be the yield-to-call or yield-to-maturity, assuming you intend to hold the bond as long as possible?
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