Question
A company issues a callable bond with the falling features: 6% coupon rate Semi-annual coupon payments $1,000 face value Matures in 15 years The bond
A company issues a callable bond with the falling features:
6% coupon rate Semi-annual coupon payments $1,000 face value Matures in 15 years The bond may only be called after 3 years. Call premium: If the bond is called anytime during the 2-years period beginning 3 years from today and ending 5 years from today, the company will pay a face value of $1,250 instead of $1,000.
Compute the yield an investor will earn buying the bond today for $1,114.61 if it is called in exactly 3 years and one day from today (the first day is it eligible to be called).
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