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 10% annual coupon, matures in 12 years, and has a $1,000 face value.

Bond B has a 7% annual coupon, matures in 12 years, and has a $1,000 face value.

Bond C has a 13% annual coupon, matures in 12 years, and has a $1,000 face value.

Each bond has a yield to maturity of 10%.

The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Use a minus sign to enter negative values, if any. If an answer is zero, enter "0".

Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, at a discount, or at par.

Bond A is selling at

a premiuma discountpar

because its coupon rate is

less thangreater thanequal to

the going interest rate.Bond B is selling at

a premiuma discountpar

because its coupon rate is

less thangreater thanequal to

the going interest rate.Bond C is selling at

a premiuma discountpar

because its coupon rate is

less thangreater thanequal to

the going interest rate.

Calculate the price of each of the three bonds. Round your answers to the nearest cent.

Price (Bond A): $

Price (Bond B): $

Price (Bond C): $

Calculate the current yield for each of the three bonds. (Hint: The expected current yield is calculated as the annual interest divided by the price of the bond.) Round your answers to two decimal places.

Current yield (Bond A): %

Current yield (Bond B): %

Current yield (Bond C): %

If the yield to maturity for each bond remains at 10%, what will be the price of each bond 1 year from now? Round your answers to the nearest cent.

Price (Bond A): $

Price (Bond B): $

Price (Bond C): $

What is the expected capital gains yield for each bond? What is the expected total return for each bond? Round your answers to two decimal places.

	Bond A	Bond B	Bond C
Expected capital gains yield
Expected total return

Mr. Clark is considering another bond, Bond D. It has a 9% semiannual coupon and a $1,000 face value (i.e., it pays a $45 coupon every 6 months). Bond D is scheduled to mature in 8 years and has a price of $1,170. It is also callable in 6 years at a call price of $1,030.

What is the bond's nominal yield to maturity? Round your answer to two decimal places.

%

What is the bond's nominal yield to call? Round your answer to two decimal places.

%

If Mr. Clark were to purchase this bond, would he be more likely to receive the yield to maturity or yield to call? Explain your answer.

Because the YTM is

less thangreater thanequal to

the YTC, Mr. Clark

shouldshould not

expect the bond to be called. Consequently, he would earn

YTCYTM

.

Explain briefly the difference between price risk and reinvestment risk.

This risk of a decline in bond values due to an increase in interest rates is called

price riskreinvestment risk

. The risk of an income decline due to a drop in interest rates is called

price riskreinvestment risk

.

Which of the following bonds has the most price risk? Which has the most reinvestment risk?

A 1-year bond with a 10% annual coupon

A 5-year bond with a 10% annual coupon

A 5-year bond with a zero coupon

A 10-year bond with a 10% annual coupon

A 10-year bond with a zero coupon

A

1-year bond with a 10% annual coupon5-year bond with a 10% annual coupon5-year bond with a zero coupon10-year bond with a 10% annual coupon10-year bond with a zero coupon

has the most price risk.A

1-year bond with a 10% annual coupon5-year bond with a 10% annual coupon5-year bond with a zero coupon10-year bond with a 10% annual coupon10-year bond with a zero coupon

has the most reinvestment risk.

Calculate the price of each bond (A, B, and C) at the end of each year until maturity, assuming interest rates remain constant. Round your answers to the nearest cent.

Years Remaining
Until Maturity		Bond A	Bond B	Bond C
12
11
10
9
8
7
6
5
4
3
2
1
0

Create a graph showing the time path of each bond's value. Choose the correct graph.

The correct graph is

graph Agraph Bgraph Cgraph D

.

A.		B.
C.		D.

What is the expected current yield for each bond in each year? Round your answers to two decimal places.

Years Remaining
Until Maturity		Bond A	Bond B	Bond C
12
11
10
9
8
7
6
5
4
3
2
1

What is the expected capital gains yield for each bond in each year? Round your answers to two decimal places.

Years Remaining
Until Maturity		Bond A	Bond B	Bond C
12
11
10
9
8
7
6
5
4
3
2
1

What is the total return for each bond in each year? Round your answers to two decimal places.

Years Remaining
Until Maturity		Bond A	Bond B	Bond C
12
11
10
9
8
7
6
5
4
3
2
1

I know this is long, I am just struggling on it. Any help will be greatly appreciated.