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

Bond C has a 14% 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

1. because its coupon rate isthe going interest rate.

Bond B is selling at

a premiuma discountpar

1. because its coupon rate isthe going interest rate.

Bond C is selling at

a premiuma discountpar

1. because its coupon rate isthe going interest rate.

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

Price (Bond A): $ fill in the blank 8

Price (Bond B): $ fill in the blank 9

Price (Bond C): $ fill in the blank 10

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): fill in the blank 11 %

Current yield (Bond B): fill in the blank 12 %

Current yield (Bond C): fill in the blank 13 %

less thangreater thanequal to

less thangreater thanequal to

less thangreater thanequal to

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): $ fill in the blank 14

Price (Bond B): $ fill in the blank 15

Price (Bond C): $ fill in the blank 16

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	fill in the blank 17 %	fill in the blank 18 %	fill in the blank 19 %
Expected total return	fill in the blank 20 %	fill in the blank 21 %	fill in the blank 22 %

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 6 years and has a price of $1,160. It is also callable in 4 years at a call price of $1,070.

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

fill in the blank 23 %

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

less thangreater thanequal to

1. the YTC, Mr. Clarkexpect 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

price riskreinvestment risk

1. . 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 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

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

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