Question

Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond's yield. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions, which of the following is one of those assumptions? The bond will not be called. The bond has an early redemption feature. Consider the case of Badger Corp.: Badger Corp. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $980.35. However, Badger Corp. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Badger Corp.'s bonds? Value YTM YTC If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Badger Corp.'s bonds? 5 years 8 years 18 years 10 years

Answer 1

Question 1

Answer : Option A, The bond will not be called.

If the bond is not called then the maturity of the bond is fixed. If a maturity period is fixed and known then rate of return can be calculated more effectively and it will be closer to the market rates.

Note: Only 1 separate question per post is answered. Please ask the remaining questions in a separate post.