Congratulations, you have been hired as an analyst at the Procter and Gamble Co. (PG). It is November 1,2022 . PG just made a coupon payment (semi-annual) on its " 8%2049 " bonds that mature on November 1,2049 . The bonds currently sell for 106 with a par value of 100 a. What is the yield to maturity on the PG 2049 bond? YTM= b. What is the Current Yield? The Capital Gains Yield? Current Yield = Capital Gains Yield = c. The PG 2049 bond was issued with a call provision that cannot be used the first five years. The bond was issued in 2019, so three years have already passed. If the bond is called on its first allowable date of November 1,2024 , the company will pay bondholders 102.5. What is the yield to call on the PG 2049 bond? YT d. Kimberly-Clark Corp. (KMB) has a 5%2049 bond issue with a YTM of 6.0%. The PG and KMB bonds are identical in every way, including the Moody's and S\&P ratings, maturity date, and the fact that the respective companies can call them on November 1 , 2024 for 102.5. (The bonds were issued on different dates, thus their coupon rates and current market prices are the only difference.) What is the price for the 2049 KMB bond? Price e. Explain the difference in the YTM for the 2049 PG and KMB bonds. Which bond provides the more accurate estimate of the rate required in the marketplace for PG at this time? (Hint: the bonds are of similar risk and should have a similar rate; however, they do not. Why is that?) Congratulations, you have been hired as an analyst at the Procter and Gamble Co. (PG). It is November 1,2022 . PG just made a coupon payment (semi-annual) on its " 8%2049 " bonds that mature on November 1,2049 . The bonds currently sell for 106 with a par value of 100 a. What is the yield to maturity on the PG 2049 bond? YTM= b. What is the Current Yield? The Capital Gains Yield? Current Yield = Capital Gains Yield = c. The PG 2049 bond was issued with a call provision that cannot be used the first five years. The bond was issued in 2019, so three years have already passed. If the bond is called on its first allowable date of November 1,2024 , the company will pay bondholders 102.5. What is the yield to call on the PG 2049 bond? YT d. Kimberly-Clark Corp. (KMB) has a 5%2049 bond issue with a YTM of 6.0%. The PG and KMB bonds are identical in every way, including the Moody's and S\&P ratings, maturity date, and the fact that the respective companies can call them on November 1 , 2024 for 102.5. (The bonds were issued on different dates, thus their coupon rates and current market prices are the only difference.) What is the price for the 2049 KMB bond? Price e. Explain the difference in the YTM for the 2049 PG and KMB bonds. Which bond provides the more accurate estimate of the rate required in the marketplace for PG at this time? (Hint: the bonds are of similar risk and should have a similar rate; however, they do not. Why is that?)
