Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 5: 10DQ (page 524)

What is the difference between the following yields: coupon rate, current yield, and yield to maturity? (LO16-2)

Short Answer

Expert verified

The coupon rate states the interest amount divided by the bond’s par value.

The current yield states the interest amount divided by the current price.

The yield to maturity states the total payment due to a bondholder, including principal and interest.

Step by step solution

01

Bonds

Bonds are one of the sources of fundsfor the corporations that facilitate the business to function its operations smoothly. Long-term and short-term bonds are two major types of bonds.

02

The difference between various yields

  • Coupon rate: The coupon rate states the interest payment divided by the bond’s par value.
  • Current yield: The current yield states the interest payment divided by the bond’s current price.
  • Yield to maturity: The yield to maturity is the interest rate that will equate future interest payments and the payment at maturity (principal payment) to the current market price.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The trustee in the bankruptcy settlement for Titanic Boat Co. lists the following book values and liquidation values for the assets of the corporation. Liabilities and stockholders’ claims are also shown.

Assets

Book value

Liquidation value

Accounts receivables

\(1,400,000

\)1,200,000

Inventory

\(1,800,000

\)900,000

Machinery and equipment

\(1,100,000

\)600,000

Building and plant

\(4,200,000

\)2,500,000

Total assets

\(8,500,000

\)5,200,000

Liabilities and stockholder’s claims

Liabilities

Accounts payable

\(2,800,000

First lien, secured by machinery and equipment

\)900,000

Senior unsecured debt

\(2,200,000

Subordinated debenture

\)1,700,000

Total liabilities

\(7,600,000

Stockholder’s claims

Preferred stock

\)250,000

Common stock

\(650,000

Total stockholder’s claims

\)900,000

Total liabilities and stockholder’s claims

$8,500,000

f. Compute a ratio of your answers in part d and e. This will indicate the initial allocation ratio.

Discuss how an underwriting syndicate decreases risk for each underwriter and at the same time facilitates the distribution process.

The Pioneer Petroleum Corporation has a bond outstanding with an \(85 annual interest payment, a market price of \)800, and a maturity date in five years. Find the following:

a. The coupon rate.

b. The current rate.

c. The yield to maturity

Assume Sybase Software is thinking about three different size offerings for issuance of additional shares.

Size of Offer Public Price Net to Corporation

a. 1.1 million................. \(30 \)27.50

b. 7.0 million…………… \(30 \)28.44

c. 28.0 million………… \(30 \)29.15

What is the percentage underwriting spread for each size offer?

Trump Card Co. will issue stock at a retail (public) price of \(32. The company will receive \)29.20 per share.

a. What is the spread on the issue in the percentage terms?

b. If the firm demands receiving a new price only $2.20 below the public price suggested in part a, what will the spread be in percentage terms?

c. To hold the spread down to 2.5 percent based on the public price in part a, what net amount should Trump Card Co. receive?
See all solutions

Recommended explanations on Business Studies Textbooks

Operational Management

Read Explanation

Business Development

Read Explanation

Business Operations

Read Explanation

Organizational Behavior

Read Explanation

Nature of Business

Read Explanation

Business Case Studies

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free