Suppose a 14 year, 5%, semiannual coupon bond with a par value of $1000 is currently...

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Suppose a 14 year, 5%, semiannual coupon bond with a par value of $1000 is currently...

Suppose a 14 year, 5%, semiannual coupon bond with a par value of $1000 is currently selling for $950. The bond can be called in another 3 years for $1075. Whould you be more likely to earn the yield to call or the yield to maturity?

		Yield to call because the current price is below the call price.
		Yield to call because the coupon rate is above the yield to maturity.
		Yield to maturity because the current price is below the call price.
		Yield to maturity because the coupon rate exceeds the current market required return.

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Answer 1

Answer #1

Yield to maturity because the coupon rate exceeds the current market required return.

The YTM = 2.759% per semiannual

YTC = 4.59% per semiannual period

Hence the bonds will be held till maturity since they are lower than YTC. The YTM is high because the coupon rate is greater than the required rate.

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Answer 2

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Suppose a 14 year, 5%, semiannual coupon bond with a par value of $1000 is currently...

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