Question
On April 1, 2016, Weyland-Yutani, Inc. issued a 10 year bond (with a typical $1000 face value) that had an annual coupon value of $65.
On April 1, 2016, Weyland-Yutani, Inc. issued a 10 year bond (with a typical $1000 face value) that had an annual coupon value of $65. [We are assuming that the 2021 coupon has just been redeemed.]
- Initially, the bond was sold at the discounted price of $985.
- On April 1, 2021, this bond was selling for $1,015.
- The market rate of interest for a riskless corporate bond, of this maturity, was 3.8% on April 1, 2016, which reflects market expectations about future rates of inflation.
- The market rate of interest for a riskless corporate bond, of this maturity, was 3.5% on April 1, 2021, which reflects market expectations about future rates of inflation.
1. What was the nominal yield on this bond on April 1, 2016? [To 1 decimal place.]
2. What was the current yield on this bond on April 1, 2016? [To 1 decimal places.]
3. What was the yield to maturity for this bond on April 1, 2016? [To 2 decimal places.]
4. What was the risk premium for this bond on April 1, 2016? [To 2 decimal places.]
5. What was the nominal yield on this bond on April 1, 2021? [To 1 decimal place.]
6. What was the current yield on this bond on April 1, 2021? [To 1 decimal place.]
7. What was the yield to maturity for this bond on April 1, 2021? [To 2 decimal places.]
8. What was the risk premium for this bond on April 1, 2021? [To 2 decimal places.]
9. It is now April 1, 2021 and suddenly the Federal Reserve announces a massive program to reduce inflation. Instantly, the market rate of interest for a riskless corporate bond that would apply to this bond, falls from 4.0% to 2.5%. If there is no change in the risk premium expected for this Weyland-Yutani, Inc. bond, what will be this bonds yield to maturity? [To 2 decimal places.]
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