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NISA [10]
3 years ago
14

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. What are the bond's nominal yield to maturity and its nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places.
Business
1 answer:
Nataly [62]3 years ago
4 0

Answer:

YTM = 8.93%

YTC = 8.47%

Explanation:

P = \frac{C}{2} \times\frac{1-(1+YTC/2)^{-2t} }{YTC/2} + \frac{CP}{(1+YTC/2)^{2t}}

The first part is the present value of the coupon payment until the bond is called.

The second is the present value of the called amount

P = market price value = 1,200

C = annual coupon payment = 1,000 x 12% 120

C/2 = 60

CP = called value = 1,060

t = time = 6 years

P = 60 \times\frac{1-(1+YTC/2)^{-2\times 6} }{YTC/2} + \frac{1,060}{(1+YTC/2)^{2\times 6}}

Using Financial calculator we get the YTC

8.467835879%

P = 60 \times\frac{1-(1+YTM/2)^{-2\times 10} }{YTM/2} + \frac{1,000}{(1+YTM/2)^{2\times 10}}

The first part is the present value of the coupon payment until manurity

The second is the present value of the redeem value at maturity

P = market price value = 1,200

C = coupon payment = 1,000 x 12%/2 = 60

C/2 = 60

F = face value = 1,060

t = time = 10 years

Using Financial calculator we get the YTM

8.9337714%

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The return on investment for this division is (B) 20%.

<h3>What is the return on investment (ROI)?</h3>
  • Return on investment (ROI) or return on costs (ROC) is a ratio of net income to investment over time (costs resulting from an investment of some resources at a point in time).
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  • ROI is used as a performance indicator to evaluate the efficiency of an investment or to compare the efficiencies of several investments.
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<h3>To find the return on investment for this division:</h3>

= income/average invested assets

= $40,000/$200,000

= return on investment

= 20%

Therefore, the return on investment for this division is (B) 20%.

Know more about return on investment here:

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Correct question:

The Midwest Division of Grainger Company has an investment center average invested assets of $200,000 and an investment center income of $40,000. What is the return on investment for this division?

(A) 500%

(B) 20%

(C) 25%

(D) 80%

4 0
2 years ago
Global reserves of oil, gas, and coal are still abundant. <br> a. True <br> b. False
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Find the convexity of a seven-year maturity, 6% coupon bond selling at a yield to maturity of 8%. The bond pays its coupons annu
Julli [10]

Answer:

convexity = 37.6306

Explanation:

given data:

maturity time = 7 years

yield to maturity (y) = 8% = 0.08

coupon bond = 6%

price= $89.59 ( gotten from the summation of pv(cf) from the table attached below )

t = time

convexity can be found using this formula

= \frac{1}{p(1+y)^2}  *  summation of (t +t^2) * pv(cf)

= \frac{1}{89.59*(1.08)^2} * 3932.310   = 37.6306

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2 years ago
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