Question
2) Suppose that you are considering buying a $1,000 face value bond with an annual coupon rate of 10%, a maturity of three years and
2) Suppose that you are considering buying a $1,000 face value bond with an annual coupon rate of 10%, a maturity of three years and a price of $1,079.
a) Calculate the current yield of the bond
b) Calculate the Yield to maturity
c) Now assume that this original bond is callable in two years and carries a call premium of $1025. What is the Yield-to-Call for this bond?
d) Under what economic conditions would a company execute this call option? Why would an investor purchase this callable bond?
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Fundamentals of Futures and Options Markets
Authors: John C. Hull
8th edition
978-1292155036, 1292155035, 132993341, 978-0132993340
