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Last year Clark Co issued a 15year 12 percent semiannual coupon bond at its par value of $1000 The bond can be called in 4 years at a price of $1060 Now the bond sells for $975 a What is the

Last year Clark Co. issued a 15-year, 12 percent semiannual coupon bond at its par value of $1,000. The bond can be called in 4 years at a price of $1,060. Now the bond sells for $975.

a. What is the bond’s nominal yield to maturity? What is its nominal yield to call?

b. If the market interest rate stays the same in the near future, would an investor be more likely to actually earn the YTM or the YTC? Explain your answer. (hint: the YTM obtained in part (a) indicates the current market interest rate)

c. Suppose the bond has been selling at a premium rather than at a discount. Would the YTM then have been the most likely actual return, or would the YTC have been most likely? Explain your answer.

 

Apr 01 2020 Read more Less More

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