Assume that two firms issue bonds with the following char- acteristics. ABC Bonds are trading at...

  

 
 
 
 

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Assume that two firms issue bonds with the following char- acteristics. ABC Bonds are trading at premium with a coupon rate of 6%, while XYZ Bonds is trading at discount with a coupon rate of 7%. Which bond has higher Yield to Maturity (YTM)? Briefly explain. Identify three features of these issues that might account for the higher YTM, briefly explain. Issue Size Maturity Callable Collateral Credit Rating Sinking Fund ABC Bonds $500 million 15 years Not callable First Mortgage AA None XYZ Bonds $300 million 25 years Callable in 10 years Senior Unsecured BBB Starting in 10 years Assume that two firms issue bonds with the following char- acteristics. ABC Bonds are trading at premium with a coupon rate of 6%, while XYZ Bonds is trading at discount with a coupon rate of 7%. Which bond has higher Yield to Maturity (YTM)? Briefly explain. Identify three features of these issues that might account for the higher YTM, briefly explain. Issue Size Maturity Callable Collateral Credit Rating Sinking Fund ABC Bonds $500 million 15 years Not callable First Mortgage AA None XYZ Bonds $300 million 25 years Callable in 10 years Senior Unsecured BBB Starting in 10 years

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Discounts vs premiums Bonds are usually issued at will and their prices can fluctuate in the seconda... View the full answer