Why do investors require a premium higher rate of return on


Seaside Builders’ bonds have a maturity of 10 years with a $1,000 face value, a 7% semiannual coupon, are callable in 5 years at $1,020, and currently sell at a price of $950. a) What is the yield to maturity (YTM)? b) What is the yield to call (YTC)? c) What is the current yield (CY)? d) What is the capital gains yield (CGY)? e)Are the bonds selling at a premium or discount? f) What would happen to the price of these bonds next year if market interest rates stay the same? g) What would happen to the price of these bonds next year if market interest rates increase? h) What would happen to the coupon rate of these bonds next year if market interest rates increase? i) A 10-year T-bond has a YTM of 2.52%. Why do investors require a premium (higher rate of return) on Seaside Builders’ bonds? j) How much is the premium? $222 if the face value is $1000.

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Financial Management: Why do investors require a premium higher rate of return on
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