Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: Bond A has a 7% annual coupon, matures in 12 years, and has a $1,000 face value. 1. Bond B has a 9% annual coupon, matures in 12 years, and has a $1,000 face value. Bond C has an 11% annual coupon, matures in 12 years, and has a $1,000 face value. Each bond has a yield to maturity of 9%. 1 Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, at a discount, or at par. . 11 11 5. Calculate the price of each of the three bonds. -1 Basic Input Data Bond A Bond B Bond C Years to maturity 12 12 12 Periods per year 1 1 1 Periods to maturity 12 12 12 Coupon rate 7% 9% 11% Par value $1,000 $1,000 $1,000 Periodic payment $70 $90 $110 "Yield to maturity 9% 9% 9% 11 11 1. Calculate the current yield for each of the three bonds. (Hint: Refer to Footnote 7 for the definition of the current yield and to Table 7.1.) ! 11 11 d. If the yield to maturity for each bond remains at 9%, what will be the price of each bond 1 year from now? What is the expected capital gains yield for each bond? What is the expected total return for each bond? -1 Basic Input Data Bond A Bond B Bond C Years to maturity Periods per year Periods to maturity Coupon rate Par value Periodic payment Yield to maturity 10 2. Mr. Clark is considering another bond, Bond D. It has an 8% semiannual coupon and a $1,000 face value (i.e., it pays a $40 coupon every 6 months). Bond D is scheduled to mature in 9 years and has a price of $1,150. It is also callable in 5 years at a call price of $1,040. il