Question
A) You own a bond with the following features: face value of $1000, coupon rate of 5% (semiannual compounding), and 15 years to maturity. The
A) You own a bond with the following features: face value of $1000, coupon rate of 5% (semiannual compounding), and 15 years to maturity. The bond has a current price of $1,115. The bond is callable after 5 years with the call price of $1,050 (i.e.: the call premium is $50). What is the yield to call if the bond is called at 5 years (state as an APR)?
B)
Why do firms borrow capital?
Group of answer choices
Maintain current plant & equipment
Add to plant & equipment to exploit a favorable economic environment.
Both maintain current plant & equipment and add to plant & equipment to exploit a favorable economic environment.
To increase tax payments.
None of these reasons are valid.
C)
Assume that the Pure Expectation Theory determines interest rates in the markets. Today's market rates for different maturities are as follows:
1 year = 4%
2 years = 4.5%
3 years = 5.4%
4 years = 6.8%
5 years = 7.3%
What is the implied 2 year interest rate for investing in 3 years?
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