chp 7 bond valulation, PLEASE ONLY ANSWER PART G

Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: Bond A has a 10% annual coupon, matures in 12 years, and has a $1,000 face value Bond B has an 11% annual coupon, matures in 12 years, and has a $1,000 face value. Bond C has a 12% annual coupon, matures in 12 years, and has a $1,000 face value. Each bond has a yield to maturity of 11%. 9 a. Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, at a discount, or at par. Bond A is selling at a discount because its coupon rate is less than the going interest rate Bond B is selling at par because its coupon rate is equal to the going interest rate. Bond C is selling at a premium because its coupon rate is greater than the going interest rate b. Calculate the price of each of the three bonds. Round your answers to the nearest cent. Price (Bond A): $ 935.08 Price (Bond B): $ 1000 Price (Bond C): $ 1064.92 C. Calculate the current yield for each of the three bonds. (Hint: The expected current yield is calculated as the annual interest divided by the price of the bond.) Round your answers to two decimal places. Current yield (Bond A): 10.69 9 11 % Current yield (Bond B): Current yield (Band C): d. If the yield to maturity for each bond remains at 11%, what will be the price of each bond 1 year from now? Round your answers to the nearest 11.27 % cent. Price (Bond A): $ 937.93 Price (Bond B): $ 1000 Price (Bond C): $ 1062.07 un decimal nince Bond A Bond B Bond C 31 % 0 % Expected capital gains yield Expected total return 27 %6 11 % 11 % 11 96 e. Mr. Clark is considering another bond, Bond D. It has an 8% semiannual coupon and a $1,000 face value (le, it pays a $40 coupon every 6 months). Bond D is scheduled to mature in 6 years and has a price of $1,160. It is also callable in 4 years at a call price of $1,070. 1. What is the band's nominal yield to maturity? Round your answer to two decimal places. 4.89 % 2. What is the bond's nominal yield to call? Round your answer to two decimal places 2.56 % 3. 11 Mr. Clark were to purchase this bond, would he be more likely to receive the yield to maturity or yield to call? Explain your answer Because the YTM is less than the YTC, Mr. Clark should not D expect the bond to be called. Consequently, he would earn YTM D t. Explain briefly the difference between price risk and reinvestment risk This risk of a decline in bond values due to an increase in interest rates is called price rink The risk of an income decline due to a drop in interest rates is called investment risk Which of the following bonds has the most price risk? Which has the most reinvestment risk? A 1-year bond with an 11% annual coupon A 5-year bond with an 11% annual coupon . A 5-year bond with a zero coupon A 10-year bond with an 11% annual coupon A 10-year bond with a zero coupon A 10-year bond with a zero coupon has the most price risk Which of the following bonds has the most price risk? Which has the most reinvestment risk? . A 1-year bond with an 11% annual coupon A 5-year bond with an 11% annual coupon A 5-year bond with a zero coupon A 10-year bond with an 11% annual coupon A 10-year bond with a zero coupon A 10-year bond with a zero coupon has the most price risk A 1-year bond with an 11% annual coupon has the most reinvestment risk 9. Calculate the price of each bond (A, B, and C) at the end of each year until maturity, assuming interest rates remain constant. Round your answers to the nearest cent. Years Remaining Until Maturity 12 Bond A Bond B Bond C 100 x $ $ $ $ 11 100 $ $ 10 $ 100 $ $ 9 $ 100 x $ $ 8 $ 100 X $ $ 7 $ 100 $ $ 6 $ 100 $ $ $ 5 $ $ 100 x 100 X $ $ $ 4 3 $ 100 $ $ $ 2 $ $ 100 $ $ $ -1 100 X Next 1. What is the expected current yield for each bond in each year? Round your answers to two decimal places. Years Remaining Until Maturity Bond A Bond B 12 2.57 % 96 11 % 10 Bond C % % 9 % % % 9 % % % 8 % % % % 7 % % 6 % % % 5 % % % 4 % % % 3 9 % 2 Ino % 96 1 % %% % 2. What is the expected capital gains yield for each bond in each year? Round your answers to two decimal places. Years Remaining Until Maturity Bond A Bond B Bond C 12 % % % 11 % % 10 % % 9% % 9 % % 8 96 9 99% 96 % % % 96 Years Remaining Until Maturity 12 Bond A Bond B Bond C % % % % 11 % 10 % % 9 % % % 8 % % % 7 % % % 6 96 % % 5 % 96 % % 4 % % 3 % 96 % % 2 % 1 % % Numeric Hold 3. What is the total return for each bond in ea. d your answers to two decimal places Bond B Bond C Years Remaining Until Maturity 12 Bond A % 96 9% % % % 11 96 96 10 % % 9% % 9 % 90 % 8 9 % % 7 % 960 6 % % 96 % 5 % 96 % 4 3. What is the total return for each bond in each year? Round your answers to two decimal places. Years Remaining Until Maturity Bond A Bond B Bond C 12 % % % IM 11 % % % % 10 % % % % 9 % % 8 % % % 7 % % % % 6 % % % 5 % % % 4 % % % 3 % % % 2 % % % 1