Business, 26.06.2020 16:01 veronica25681

A firm's bonds have a maturity of 14 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 7 years at $1,073.00, and currently sell at a price of $1,135.93. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places.

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Answer from: aariannahnorwoo

YTM = 6.51%

YTC = 6.40%

Explanation:

We need to solve using excel goal seek or bond formulas to generate the yield (interest rate) which matches the future couponb and maturity payment with the current selling price of the bond:

Present value of the coupon

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C40.000 (1,000 x 8% / 2 payment per year)

time28 (14 years x 2 payment per year)

rate0.032529972 (generate using goal seek tool)

$40 \times \frac{1-(1+0.0325299719911398)^{-28} }{0.0325299719911398} = PV\\$

PV$727.8688

Pv of the maturity (lump sum)

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1,000.00

time 28.00

rate 0.032529972

$\frac{1000}{(1 + 0.0325299719911398)^{28} } = PV$

PV 408.06

PV c$727.8688

PV m $408.0612

Total$1,135.9300

As this is a semiannual rate we multiply it by 2

0.032529972 x 2 = 0.065059944 = 6.51%

We repeat the procedure with changing the time and end-value to adjust for the callabe conditions:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C40.000

time14 (7 years x 2 payment per year)

rate0.032015131

$40 \times \frac{1-(1+0.0320151313225188)^{-14} }{0.0320151313225188} = PV\\$

PV$445.6984

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1,073.00 (call price)

time 14.00

rate 0.032015131

$\frac{1073}{(1 + 0.0320151313225188)^{14} } = PV$

PV 690.23

PV c$445.6984

PV m $690.2316

Total$1,135.9300

Againg his will be a semiannual rate so we multiply by two:

0.032015131 x 2 = 0.064030263 = 6.40%

Answer from: Quest

Secured loans are protected by collateral security. examples: title loans where the borrower uses the car title as collateral security interest rates are lower and repayments are longer therefore risk is low as a collateral security is given as guarantee to the bank in case of failure to pay the loanunsecured loans are not protected by collateral security but it is given on the creditworthiness of the borrower, trusting that she/he will pay on time. examples; payday loans is a short term loan where the borrower lends money from the bank and pays is back when the borrower receives his/her wages.interest rates are high and repayments are shorter. but the risk is high as no collateral security is given as a guarantee to the bank for payment of the loan

Answer from: Quest

3rd the reason why is because of management and leadership

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