Madsen Motors's bonds have 8 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 6.5%; and the yield to maturity is 9%. What is the bond's current market price? Round your answer to the nearest cent.

1. 
      %
2. Assume that the yield to maturity remains constant for the next 3 years. What will the price be 3 years from today? Do not round intermediate calculations. Round your answer to the nearest cent.
   
   $

 

3. Nesmith Corporation's outstanding bonds have a $1,000 par value, a 6% semiannual coupon, 20 years to maturity, and an 9% YTM. What is the bond's price? Round your answer to the nearest cent.

$

 

4.  An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.4%. Bond C pays a 12% annual coupon, while Bond Z is a zero coupon bond.

 

1. Assuming that the yield to maturity of each bond remains at 8.4% over the next 4 years, calculate the price of the bonds at each of the following years to maturity. Round your answer to the nearest cent.

 

Years to Maturity	Price of Bond C	Price of Bond Z
4	$	$
3
2
1
0

 

5. a) Last year Carson Industries issued a 10-year, 12% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,060 and it sells for $1,200.

1. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.
    %
   
   What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places.
    %

6. What is the current yield? (Hint: Refer to Footnote 7 for the definition of the current yield and to Table 7.1.) Round your answer to two decimal places.
 %

 

7. Is this yield affected by whether the bond is likely to be called?
 

1. If the bond is called, the current yield and the capital gains yield will both be different.
2. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different.
3. If the bond is called, the current yield will remain the same but the capital gains yield will be different.
4. If the bond is called, the current yield and the capital gains yield will remain the same.
5. If the bond is called, the capital gains yield will remain the same but the current yield will be different.

8. What is the expected capital gains (or loss) yield for the coming year? Use amounts calculated in above requirements for calcuation, if reqired. Round your answer to two decimal places. Enter a loss percentage, if any, with a minus sign.
 %
 

9. Is this yield dependent on whether the bond is expected to be called?
 

1. If the bond is expected to be called, the appropriate expected total return will not change.
2. The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called.
3. The expected capital gains (or loss) yield for the coming year does not depend on whether or not the bond is expected to be called.
4. If the bond is expected to be called, the appropriate expected total return is the YTM.
5. If the bond is not expected to be called, the appropriate expected total return is the YTC.

 

10. Kempton Enterprises has bonds outstanding with a $1,000 face value and 10 years left until maturity. They have an 11% annual coupon payment, and their current price is $1,185. The bonds may be called in 5 years at 109% of face value (Call price = $1,090).

1. What is the yield to maturity? Round your answer to two decimal places.
    %
   
    
2. What is the yield to call if they are called in 5 years? Round your answer to two decimal places.
    %

Which yield might investors expect to earn on these bonds? Why?

 

1. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC.
2. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
3. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
4. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
5. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.

The bond's indenture indicates that the call provision gives the firm the right to call the bonds at the end of each year beginning in Year 5. In Year 5, the bonds may be called at 109% of face value; but in each of the next 4 years, the call percentage will decline by 1%. Thus, in Year 6, they may be called at 108% of face value; in Year 7, they may be called at 107% of face value; and so forth. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds? Do not round intermediate calculations.