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It is now January 1 , 2 0 2 1 , and you are considering the purchase of an outstanding bond that was issued on
It is now January and you are considering the purchase of an outstanding bond that was issued on January It has a annual coupon and had a
year original maturity. It matures on December There is years of call protection until December after which time it can be called at
that is at of par, or $ Interest rates have declined since it was issued, and it is now selling at of par, or $
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 greater than the YTC
II Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC
III. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM
IV Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM
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 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 greater than the YTM
III. Investors would expect the bonds to be called and to earn the YTC because the YTC is less 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
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