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One year ago Clark Company issued an 8-year, 10% half yearly coupon bond at its par value of $1,000. Presently, the bond can be called in 6 years at a price of $987, and it now sells for $986.22.

problem1. What is the bond's nominal yield to maturity?

problem2. What is the bond's nominal yield to call?

problem3. Would an investor be more likely to earn the YTM or the YTC?

problem4. What is the current yield?

problem5. Is this yield affected by whether the bond is likely to be called?

i) If the bond is called, the current yield and the capital gains yield will both be dissimilar.

ii) If the bond is called, the current yield and the capital gains yield will stay the same but the coupon rate will be different.

iii) If the bond is called, the current yield will stay the same but the capital gains yield will be dissimilar.

iv) If the bond is called, the current yield and the capital gains yield will stay the same.

v) If the bond is called, the capital gains yield will stay the same but the current yield will be dissimilar.

problem6. What is the expected capital gains (or loss) yield for the coming year?

problem7. Is this yield dependent on whether the bond is expected to be called?

i) If the bond is expected to be called, the appropriate expected total return is YTM.

ii) If the bond is not expected to be called, the appropriate expected total return is YTC.

iii) If the bond is expected to be called, the appropriate expected total return will not change.

iv) The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called.

v) The expected capital gains (or loss) yield for the coming year does not depend on whether or not the bond is expected to be called.

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93479

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