Question
A company has the following bond outstanding. The bond is callable every year on May 1st, the anniversary date of the bond. The bond has
A company has the following bond outstanding. The bond is callable every year on May 1st, the anniversary date of the bond. The bond has a deferred call with three years left. The call premium on the first call date is one year's interest. The call premium will decline by 10 percent of the original call premium for 10 years. Eleven years from today, the call premium will be zero. Given the following information, what is the yield to worst for this bond?
| Current date: |
| 5/1/2016 |
| Maturity date: |
| 5/1/2036 |
| Price (percent of par): | 104.5 | |
| Coupon rate: |
| 10.00% |
| Par value (percent of par): | 100 | |
| Coupons per year: | 2 | |
| Call date | Call premium |
|
| 5/1/2019 | $ 100.00 |
|
| 5/1/2020 | $ 90.00 |
|
| 5/1/2021 | $ 80.00 |
|
| 5/1/2022 | $ 70.00 |
|
| 5/1/2023 | $ 60.00 |
|
| 5/1/2024 | $ 50.00 |
|
| 5/1/2025 | $ 40.00 |
|
| 5/1/2026 | $ 30.00 |
|
| 5/1/2027 | $ 20.00 |
|
| 5/1/2028 | $ 10.00 |
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started