Business, 22.02.2020 03:32 adanamador8807

Purple Whale Foodstuffs Inc. 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 $1130.35. However, Purple Whale Foodstuffs Inc. may call the bonds in eight years at a call price of $1,060.

1. What is the TYM? -options: 8.55%, 7.09%, 9.59%, 7.64%
2. What is the YTC? -options: 7.36%, 9.59%, 7.64%, 6.47%
3. If interest rates are expected to remain constant, what is the best estimate of the remaining life left for RTE Incs bonds? -options: 8 yrs, 5 yrs, 13 yrs, 10 yrs
4. If RTE issued new bonds today, what coupon rate must have to be issued at par? -options: 8.32%, 7.64%, 7.09%, 9.59%

Answers: 1

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Answer from: Browardlovesangel

1. What is the TYM? 7.64%

2. What is the YTC?: 7.36%

3. 3. If interest rates are expected to remain constant, what is the best estimate of the remaining life left for RTE Incs bonds? : 8 yrs

As the YTC is lower than YTM the company will purchase the bonds

4. If RTE issued new bonds today, what coupon rate must have to be issued at par? 7.64%

The bonds will need to be issued at market to be at par.

Explanation:

We solve for the YTM and YTC considering they are the sum of the coupon payment and maturity or call price which maches the current market price:

YTM

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C90.000

time18

rate0.076433667

$90 \times \frac{1-(1+0.0764336671248898)^{-18} }{0.0764336671248898} = PV\\$

PV$864.7491

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1,000.00

time 18.00

rate 0.076433667

$\frac{1000}{(1 + 0.0764336671248898)^{18} } = PV$

PV 265.60

PV c$864.7491

PV m $265.6006

Total$1,130.3497

YTC

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C90.000

time8

rate0.073634141

$90 \times \frac{1-(1+0.073634140780717)^{-8} }{0.073634140780717} = PV\\$

PV$529.9297

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1,060.00

time 8.00

rate 0.073634141

$\frac{1060}{(1 + 0.073634140780717)^{8} } = PV$

PV 600.42

PV c$529.9297

PV m $600.4203

Total$1,130.3500

Answer from: Quest

As a costumer i would say c.hope it !

Answer from: Quest

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans.

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.

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Purple Whale Foodstuffs Inc. has 9% annual coupon bonds that are callable and have 18 years left unt...

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