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One year ago Clark Company issued a 10-year, 9% half yearly coupon bond at its par value of $1,000. Currently, the bond can be called in 5 years at a price of $950, and it now sells for $925.40.

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

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

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

problem4. What is the current yield? 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 remain the same but the coupon rate will be different.

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

iii) If the bond is called, the current yield and the capital gains yield will remain the same.

iv) If the bond is called, the capital gains yield will remain the same however the current yield will be different.

v) If the bond is called, the current yield and the capital gains yield will both be different

problem5. What is the expected capital gains (loss) yield for the upcoming year? Is this yield dependent on whether the bond is expected to be called?

i) If the bond is not expected to be called, the proper expected total return is the YTC.

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

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

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

v) If the bond is expected to be called, the proper expected total return is the YTM.

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93467

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