1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
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.

You might be interested in
The end goal of the Executive order is to provide what to the patients
dmitriy555 [2]
Death or happiness or even sadness or maybe life or a happy feeling
6 0
3 years ago
This exercise is built around Whole Foods Market’s financial statements from the chapter. Average common shareholders’ equity fo
uysha [10]

Answer: ROCE was 13.7% in 2012

Explanation:

4 0
3 years ago
Which of the following is a characteristic of a partnership? a.The partners have limited liability. b.The partnership is subject
Ulleksa [173]

Answer:

The correct answer is letter "C": The partnership has a limited life.

Explanation:

A partnership is an organization with two or more members running a business. They share the profits in percentage terms in proportion to their partnership value. There are two types of partnerships: general partnerships (<em>unlimited liability</em>) and limited partnerships (<em>liability proportional to the contribution to the partnership</em>).

The partnership dissolves and a new partnership is created when one of the partners is removed, retired or deceased or even when a new partner is introduced. Thus, <em>partnerships have a limited life</em>.

8 0
3 years ago
Global aspirants are:
MissTica

Answer:

c. companies that have already developed products for their domestic middle markets and are now seeking to parlay their existing capabilities to serve the external global middle class.

Explanation:

  • The global aspirant companies are those that strive for a globally competitive market with the product that is already developed in the market and use for the domestic middle-income countries. That target the global middle classes and serves to the external global environment of the company and is the key to business products in the society.
5 0
3 years ago
Net Zero Products, a wholesaler of sustainable raw materials. Prepared the following aging of receivables analysis.
kkurt [141]

Answer:

Net Zero Products

a) The balance of the Allowance for Doubtful Accounts using the aging of accounts receivable method is $4,300.

b) Adjusting Entry to record bad debt expense:

Debit Bad Debt Expense $1,700

Credit Allowance for Doubtful Accounts $1,700

To record the bad debt expense for the period and bring the allowance to $4,300 credit balance.

Explanation:

a) Data and Calculations:

Aging of receivables analysis:

Total (days)                          0        1 to 30     31 to 60     61 to 90     above 90

Accounts receivable $171,000   $96,000   $34,000     $15,000     $12,000

Percent uncollectible                      1%            4%                 6%            9%

Allowance for doubtful     0          $960        $1,360         $900        $1,080

Total allowance for doubtful = $4,300 (960 + 1,360 + 900 + 1,080)

b) The adjustment in the Allowance for Doubtful Accounts needed for the current period is $1,700 ($4,300 - $2,600).  This amount will be debited to the Bad Debts Expense account and credited to the Allowance for Doubtful Accounts.  It will bring the total for the Allowance for Doubtful Accounts to $4,300 from $2,600.

3 0
3 years ago
Other questions:
  • Ben and Sam Jenkins formed a partnership. Ben contributed $8,000 cash and a used truck that originally cost $35,000 and had accu
    15·1 answer
  • The following table lists all costs of quality incurred by Sam's Surf Shop last year. Annual inspection costs Annual cost of scr
    6·1 answer
  • When meeting a CEO whom he hoped to win over as a new client, James, dressed in an Armani suit, introduced himself from across h
    9·2 answers
  • How does specialization affect voluntary exchange between countries?
    5·1 answer
  • The balance sheet of FIFA Cup Company included the following shareholders' equity section at December 31, 2021: ($ in millions)
    7·1 answer
  • Jefferson County bought a new backhoe using General Fund cash. When the asset was acquired, what was the appropriate entry that
    15·1 answer
  • Three years ago, Joe bought a 5-year, 10% coupon paid semiannually bond for $1000. Currently, with interest rates having risen s
    15·1 answer
  • Exhibit 9-4 Refer to Exhibit 9-4. Assume the economy is self-regulating and currently is in long-run equilibrium with the price
    13·1 answer
  • The manufacturing overhead account is debited when ______.
    11·1 answer
  • When demonstrating 2023 leaf’s smooth acceleration, what should you point out?.
    13·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!