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laiz [17]
3 years ago
7

A 10-year maturity, 8% coupon bond paying coupons semiannually is callable in five years at a call price of $950. The bond curre

ntly sells at a yield to maturity of 7.5% (3.8% per half-year). a. What is the yield to call annually?
Business
1 answer:
nasty-shy [4]3 years ago
3 0

Answer:

6.76% annually

Explanation:

The rate of return bondholders receives on a callable bond until the call date is called Yield to call.

Yield to Call = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]

It is assumed that face value of Bond is $1,000

C = Coupon Payment = $1,000 x 3.8% = $38

F = Face value = $1,000

P = Call price = $950

n -= number of periods to call = 5 x 2 = 10 periods

Yield to Call = [ $38 + ( $1,000 - $950 ) / 10 ] / [ ( $1,000 + $950 ) / 2 ]

Yield to Call = [ $38 - 5 ] / $975 = $33 / $975 = 0.0338 = 3.38% semiannually

YTC = 3.38% semiannually = 6.76% annually

You might be interested in
National income accountants can avoid multiple counting by1. only counting intermediate goods. 2. only counting final goods.3. i
lubasha [3.4K]

Answer:

2. Only counting final goods

Explanation:

When defining national income accounting and terminolgies, emphasis is always laid on "...total value of FINAL goods...". This is as a result of avoiding double counting. If intermediate goods were counted alongside final goods, it would be double counting because intermediate goods are used in producing those final goods. Final goods are good meant for final consumption. The other method used in avoiding double counting ( counting of the value of the same product more than once) apart from counting final gooda is Value added approach.

4 0
3 years ago
Space Fuel Inc. is considering establishing a new propellant depot to provide space vehicles a refueling point in their trek to
schepotkina [342]

Answer:

NPV = $55,894.45

Explanation:

the initial outlay of the project is $200,000

the salvage value is $10,000

useful life 10 years

annual costs $9,000

annual savings $50,000

luckily there are no taxes in space

we must determine the effective interest rate in order to be able to discount the future cash flows

(1 + 0.0478/6)¹² - 1 = 9.99%

the net cash flow per year (for years 1 - 9) = $50,000 - $9,000 = $41,000

net cash flow for year 10 = $41,000 + $10,000 = $51,000

using a financial calculator, the NPV = $55,894.45

7 0
3 years ago
Fooling Company has a callable bond outstanding with a coupon of 10.4 percent, 25 years to maturity, call protection for the nex
erastovalidia [21]

Answer:

The yield to call for this bond is 9.30%

Explanation:

Yield to call

The rate of return bondholders receives on a callable bond until the call date is called Yield to call.

Now use the following formula to calculate the Yield to call

Yield to Call = [ C + ( F - P ) / n ] / [ ( F + P ) / 2 ]

Where

F = Face value = $1,000 ( Assumed )

C = Coupon Payment = Face value x Coupon rate = $1,000 x 10.4% = $104

P = Call price of the bond = Face value + Call Premium = $1,000 + $75 = $1,075

n = Numbers of years to call = 10 years

Placing vlaues in the formula

Yield to Call = [ $104 + ( $1,000 - $1,075 ) / 10 years ] / [ ( $1,000 + $1,075 ) / 2 ]

Yield to Call = 0.0930

Yield to Call = 9.30%

8 0
3 years ago
When making replacement decisions, the development of relevant cash flows is complicated when compared to expansion decisions.
fgiga [73]

Answer: True

Explanation:

Decision regarding an asset replacement is usually based on both the internal rate of return and the net present value of the incremental cash flows.

Therefore, it should be noted that this brings about the complications when comparing the development of relevant cash flows to the expansion decisions.

4 0
2 years ago
Why is the location of a business important to the success of that business?
Anna007 [38]

Choosing a location for a new business is one of the most important decisions entrepreneurs make during the planning phase of launching ventures. The location of a business can affect many aspects of how it operates, such as total sales and how costly it is to run.


5 0
3 years ago
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