23 Jul IF YOU BOUGHT THIS BOND WHICH RETURN WOULD YOU ACTUALLY EARN?
It is now January 1 2014 and you are considering the purchase of an outstanding bond Show more Yield to call It is now January 1 2014 and you are considering the purchase of an outstanding bond that was issued on January 1 2012. It has a 9.5% annual coupon and had a 30-year original maturity. (It matures on December 31 2041.) There is 5 years of call protection (until December 31 2016) after which time it can be called at 109-that is at 109% of par or $1090. Interest rates have declined since it was issued; and it is now selling at 120.075% of par or $1200.75. What is the yield to maturity? Round your answer to two decimal places. % What is the yield to call? Round your answer to two decimal places. % If you bought this bond which return would you actually earn? Explain your reasoning. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. -Select-IIIIIIIVVItem 3 Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return or would the yield to call have been most likely? Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. Show less
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