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stepladder [879]
3 years ago
7

A(n) 11.0​%, ​25-year bond has a par value of​ $1,000 and a call price of ​$1 comma 025. ​(The bond's first call date is in 5​ y

ears.) Coupon payments are made semiannually​ (so use semiannual compounding where​ appropriate). a. Find the current​ yield, YTM, and YTC on this​ issue, given that it is currently being priced in the market at $ 1 comma 150. Which of these 3 yields is the​ highest? Which is the​ lowest? Which yield would you use to value this​ bond? Explain. b. Repeat the 3 calculations​ above, given that the bond is being priced at ​$800. Now which yield is the​ highest? Which is the​ lowest? Which yield would you use to value this​ bond? Explain.
Business
1 answer:
mixas84 [53]3 years ago
5 0

Answer:

the formula to calculate yield to maturity (YTM) is:

YTM = [C + (F - P)/n] / [(F + P)/2]          

  • F = face value
  • P = market price
  • n = number of years x 2 =
  • C = coupon      

the formula to calculate yield to call (YTC) is:

YTC = [C + (F - CP)/n] / [(F + CP)/2]      

  • F = face value
  • CP = call price
  • n = number of years x 2 =
  • C = coupon      

the formula to calculate current yield is:

Current yield = C / P

  • C = coupon
  • P = market price

A)

25 year bond, $1,000 face value, semiannual coupons, 11%, call price $1,025, market price $1,150:

YTM = [C + (F - P)/n] / [(F + P)/2]          

  • F = 1,000
  • P = 1,150
  • n = number of years x 2 = 25 x 2 = 50
  • C = 55      

YTM = [55 + (1,000 - 1,150)/50] / [(1,000 + 1,150)/2] =  [55 - 3] / 1,075 = 0.04837 or 4.84%  

YTC = [C + (F - CP)/n] / [(F + CP)/2]      

  • F = 1,000
  • CP = 1,025
  • n = number of years x 2 = 5 x 2 = 10
  • C = 55      

YTC = [55 + (1,000 - 1,025)/10] / [(1,000 + 1,025)/2] = [55 -2.50] / [1,012.50] = 0.05185 or 5.19%

Current yield = C / P

  • C = 55
  • P = 1,150

Current yield = 55 / 1,150 = 0.0478 or 4.78%

The highest value is the Yield to Call (5.19%) while the lowest value is the current yield (4.78%). Since the bonds were sold at a premium, the coupon rate is higher than the market rate, therefore, it is likely that the company will actually call them. So we should use the yield to call value.

B)

25 year bond, $1,000 face value, semiannual coupons, 11%, call price $1,025, market price $800:

YTM = [C + (F - P)/n] / [(F + P)/2]          

  • F = 1,000
  • P = 800
  • n = number of years x 2 = 25 x 2 = 50
  • C = 55      

YTM = [55 + (1,000 - 800)/50] / [(1,000 + 800)/2] =  [55 + 4] / 900 = 0.06555 or 6.56%  

YTC = [C + (F - CP)/n] / [(F + CP)/2]      

  • F = 1,000
  • CP = 1,025
  • n = number of years x 2 = 5 x 2 = 10
  • C = 55      

YTC = [55 + (1,000 - 1,025)/10] / [(1,000 + 1,025)/2] = [55 -2.50] / [1,012.50] = 0.05185 or 5.19%

Current yield = C / P

  • C = 55
  • P = 800

Current yield = 55 / 800 = 0.06875 or 6.88%

The highest value is the current yield (6.88%) while the lowest value is the Yield to Call (5.19%). Since the bonds were sold at a discount, the coupon rate is lower than the market rate, therefore, it is not likely that the company will actually call them. So we should use the yield to maturity value.

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Answer:

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Explanation:

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4 0
3 years ago
If a consumer refuses to provide required suitability information, what must the producer/insurer do
V125BC [204]

Obtain a customer signed statement acknowledging that an annuity transaction is not recommended if a customer decides to enter into an annuity transaction that is not based on the insurance producer's or insurer's recommendation.

<h3>Who is responsible for verifying your suitability?</h3>

The insurer or third party delegate authorized pursuant to section 224.

6(c) of Regulation 187 conducts a suitability review prior to the issuance of an insurance product or the effectuation of a sales transaction; and.

The insurer has procedures designed to prevent financial exploitation and abuse.

<h3>What factors are important considerations when determining suitability of an annuity sale?</h3>

Suitability Information Gathered by an Insurer

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<h3>brainly.com/question/15171641</h3><h3 /><h3>#SPJ4</h3>
7 0
1 year ago
10 points
mars1129 [50]
$4225 here’s how I got the answer so he purchased 13 shares but each share cost $325 so 13 times 325 is 4225
7 0
2 years ago
On January 1st, 2019, Pizza Company awarded 5 million of its no par common shares to key personal. The award is subject to forfe
Allisa [31]

Answer:

A. Debit Compensation Expense $10,000,000

Credit PIC-Excess Par $10,000,000

Explanation:

The total cost of the stock options granted is allocated to the respective years in which the stock compensation relates as below:

Total stock compensation=market value per share on grant date*number of stock options

Total stock compensation=$10*5,000,000=$50,000,000

compensation expense allocated per year=$50,000,000/5

compensation expense per year=$10,000,000

6 0
3 years ago
Alaska king crab fishing in the 1960s and '70s was a dangerous but rich fishery. Boats from as far away as California and Japan
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b. There are 2 ways to avoid this

1. fishing permits have to be sold to the fishermen coming to fish for the crabs. Then the persons with the highest willingness to pay will come and buy the permits to fish.

2. Issuing just a particular amount of permits this would cause the fishermen to trade these permits. These open-market strategies have proved to be effective in organizing economic activity and are good stimulators in an economy.

c. They have been successful because regulations have been placed on fishing by the government. Also, if there are restrictions on other countries using up their spots and Canadians are the only ones fishing salmon, then there will be reduction in the decay rate of the population of the salmon, the salmon can easily repopulate, then Canadians would be able to come back the next year to fish again..

7 0
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