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 an $8\%$ annual coupon, matures in $12$ years, and has a $$1,000$ face value.

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

Each bond has a yield to maturity of $8\%.$

values, if any. If an answer is zero, enter $"0".$

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

$|$ because its coupon rate is

$|$the going interest rate.

Bond $B$ is selling at

because its coupon rate is

the going interest rate.

Bond $C$ is selling at

because its coupon rate is

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$)$: $

Current yield $($Bond A$)$:

$\%$

Current yield $($Bond B$)$:

$\%$

Current yield $($Bond C$)$:

d$.$ If the yield to maturity for each bond remains at $8\%,$ 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

Expected capital gains yield

Expected total return

Bond B

$[$

$]$

also callable in $5$ years at a call price of $$1,040.$

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

fill in the blank $24$

$\%$

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

$.$

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

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

$.$

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

A $1-$year bond with an $8\%$ annual coupon

A $5-$year bond with an $8\%$ annual coupon

A $5-$year bond with a zero coupon

A $10-$year bond with an $8\%$ annual coupon

A $10-$year bond with a zero coupon

A

has the most price risk.

A

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

$12$ $ 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 $70$