It is now January $1,2019,$ and you are considering the purchase of an outstanding bond that was issued on January $1,2017.$ It has a $9\mathrm{.}5\%$ annual coupon and

had a $30-$year original maturity. $($It matures on December $31,2046.)$ There is $5$ years of call protection $($until December $31,2021),$ after which time it can be

called at $108-$that is$,$ at $108\%$ of par, or $$1,080.$ Interest rates have declined since it was issued, and it is now selling at $120\mathrm{.}08\%$ of par, or $$1,200\mathrm{.}80.$

a$.$ What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.

$\%$

What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places.

$\%$

b$.$ If you bought this bond, which return would you actually earn?

I. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC$.$

II$.$ Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM$.$

III. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM$.$

IV$.$ Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC$.$

c$.$ Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return, or would the yield to

call have been most likely?

I. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM$.$

II$.$ Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC$.$

III. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC$.$

IV$.$ Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM$.$

Lourdes Corporation's $13\%$ coupon rate, semiannual payment, $$1,000$ par value bonds, which mature in $25$ years, are callable $4$ years from today at $$1,025.$

They sell at a price of $$1,248\mathrm{.}53,$ and the yield curve is flat. Assume that interest rates are expected to remain at their current level.

a$.$ What is the best estimate of these bonds' remaining life? Round your answer to the nearest whole number.

years

b$.$ If Lourdes plans to raise additional capital and wants to use debt financing, what coupon rate would it have to set in order to issue new bonds at par?

I. Since Lourdes wishes to issue new bonds at par value, the coupon rate should be set the same as that on the existing bonds.

II$.$ Since Lourdes wishes to issue new bonds at par value, the coupon rate should be set the same as the current yield on the existing bonds.

III. Since interest rates have risen since the bond was first issued, the coupon rate should be set at a rate above the current coupon rate.

IV$.$ Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTC$.$

V$.$ Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTM$.$

A $9\%$ semiannual coupon bond matures in $5$ years. The bond has a face value of $$1,000$ and a current yield of $9\mathrm{.}0285\%.$ What are the bond's price and YTM$?$

$($Hint: Refer to Footnote $6$ for the definition of the current yield and to Table $7\mathrm{.}1)$ Do not round intermediate calculations. Round your answer for the bond's price

to the nearest cent and for YTM to two decimal places.

Bond's price: $

YTM:

$\%$