Answer Happy

Coupon payments are fixed, but the percentage return that
investors receive varies based on market conditions. This
percentage return is referred to as the bond’s yield.
Yield to maturity (YTM) is the rate of return expected from
a bond held until its maturity date. However, the YTM equals the
expected rate of return under certain assumptions. Which of the
following is one of those assumptions?
The probability of default is zero.
The bond is callable.
Consider the case of Eades Corp.:
Eades Corp. 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 $1,040.35. However, Eades
Corp. may call the bonds in eight years at a call price of $1,060.
What are the YTM and the yield to call (YTC) on Eades Corp.’s
bonds?
Value
If interest rates are expected to remain constant, what is the
best estimate of the remaining life left for Eades Corp.’s
bonds?
5 years
10 years
8 years
18 years
If Eades Corp. issued new bonds today, what coupon rate must the
bonds have to be issued at par?