1) . **I believe (c) is answered incorrectly here. Because it is asking the difference between Bond c and b, but the answer shows between Bond c and a. Correct?****

2) . **Could you please clarify my confusion below in plain english?***

Theoretically, the table says bond B's price is par. that means it's being sold for PV is $1,000 as it's FV will also be $1,000.

could you explain to me why Bond A is not par, but Bond B is par, I understand the callable feature. But is this possible? Because if I enter into the financial calculator bond B's details, PV=1000 FV=1000 n=20 PMT=55 i=?

although the table gives a yield of 5%, using it I would get a different yield.

Yet for Bond A we will use i=5 for calculating PV =?, I would input FV=1000 i=5% PMT =55 n=20 pv=? (which is not par as Bond B).

These are very different. I'm confused how there aren't rules as to what we can input or can't input.

Bond A we use the Yield/i = 5% to get the PV.

Yet in B we use PV = 1000 to change the Yield/i this is the part where i get confused .

Thanks in advance.

8.4 Assume the yield curve on "plain vanilla" default-free bonds is flat at 5%, and you are thinking of buying a default-free bond. Specifically, you're thinking of buying a bond issued by Rims-.5559, a company considered to be default-free by all major bond rating firms. You will select one of the following three bonds, all identical except for the special features listed: Face Maturity Coupon Yield to Special Price Value Rate (Paid Maturity Features Annually} A 1000 20 years 5.5% 5% None ? B 1000 20 years 5.5% 5% Callable Par C 1000 20 years 5.5% 3.5% Callable and ? Convertible into Risklessco Stock A. Why is the yield on bonds A and B 5%? Why is the yield on bond C different? FNCE300V1 Assignment 2 March 30, 2017 Both bond A and B has a YTM of 5% indicating the growth in market demand. The investor will not make an investment in bond lower than 5% YTM. Band C has lower YTM due to the incremental features that are callable and convertible feature motivated investor to purchase them resulting in pulling down the YTM of the bond. B. What would be the price of Bond A? N = 20, I/Y (YTM) = 5%, PV =?, PMT = $55, FV = $1,000 Pi! = $1,062.31 (negative, as the priced amount to pay). C. If bond C is considered identical to bond B except for the conversion privilege, what is the value of the conversion privilege? Does the conversion privilege benefit the issuer of the bond or the purchaser? Is this consistent with the price you calculated for bond (2? Price of band C = N = 20, I/Y (YTM) = 3.5%, PV =?, PMT = $55, FV = $1,000 PV = 1,284.25 Price of bond A = $1,062.31. $1,284.25 - $1,062.31 = $221.94 is the additional price paid for the callable and convertible features for bond C. The conversion privilege benets the bondholder, as the bond is more attractive. This raises its price and lowers the yield to maturity. This is consistent with the price calculated for band C because the price of bond C is $221.94 more than that of bond A. Bond C also has a lower yield to maturity of 3.5% compared to 5% of bond A and B