Question
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
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 an 11% annual coupon, matures in 12 years, and has a $1,000 face value. Bond B has a 12% 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 11%.
1. If the yield to maturity for each bond remains at 11%, what will be the price of each bond 1 year from now? Round your answers to the nearest cent.
(Bond A): $
(Bond B): $
(Bond C): $
2. 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 total return
Bond A %
Bond B %
Bond C %
3. 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.
Bond D %
What is the bond's nominal yield to call? Round your answer to two decimal places.
Bond D %
4. 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 | $ fill in the blank 32 | $ fill in the blank 33 | $ fill in the blank 34 | |
| 11 | $ fill in the blank 35 | $ fill in the blank 36 | $ fill in the blank 37 | |
| 10 | $ fill in the blank 38 | $ fill in the blank 39 | $ fill in the blank 40 | |
| 9 | $ fill in the blank 41 | $ fill in the blank 42 | $ fill in the blank 43 | |
| 8 | $ fill in the blank 44 | $ fill in the blank 45 | $ fill in the blank 46 | |
| 7 | $ fill in the blank 47 | $ fill in the blank 48 | $ fill in the blank 49 | |
| 6 | $ fill in the blank 50 | $ fill in the blank 51 | $ fill in the blank 52 | |
| 5 | $ fill in the blank 53 | $ fill in the blank 54 | $ fill in the blank 55 | |
| 4 | $ fill in the blank 56 | $ fill in the blank 57 | $ fill in the blank 58 | |
| 3 | $ fill in the blank 59 | $ fill in the blank 60 | $ fill in the blank 61 | |
| 2 | $ fill in the blank 62 | $ fill in the blank 63 | $ fill in the blank 64 | |
| 1 | $ fill in the blank 65 | $ fill in the blank 66 | $ fill in the blank 67 | |
| 0 | $ fill in the blank 68 | $ fill in the blank 69 | $ fill in the blank 70 | |
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