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 $6\%$ annual coupon, matures in $12$ years, and has a $$1,000$ face value.

Bond $B$ has a $14\%$ annual coupon, matures in $12$ years, and has a $$1,000$ face value.

Bond $C$ has a $10\%$ 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 $"0".$

Download spreadsheet Bond Valuation$-9$bf$53$d$.$xlsx

a$.$ 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 discount $$ because its coupon rate is the going interest rate.

Bond $B$ is selling at a premium $$ because its coupon rate is the going interest rate.

Bond $C$ is selling at $]$ because its coupon rate is equal the going interest rate.

b$.$ 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$)$: $

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$)$: $\%$

d$.$ 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.

e$.$ Mr$.$ Clark is considering another bond, Bond D$.$ It has a $7\%$ semiannual coupon and a $$1,000$ face value $($i$.$e$.,$ it pays a $$35$ coupon every $6$ months$).$ Bond D is scheduled to mature in $9$ years and has a price of $$1,140.$ It is also callable in $7$ years at a call price of $$1,020.$

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

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 the YTC$,$ Mr$.$ Clark expect the bond to be called. Consequently, he would earn

f$.$ 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 is called $1.$ The risk of an income decline due to a drop in interest rates

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 has the most price risk.

A$|]$ has the most reinvestment risk.