Question
An 11-year 6%2% semiannual coupon bond with a par value of $1,000 may be called in 3 years at a call price of $1,020.
An 11-year 6%2% semiannual coupon bond with a par value of $1,000 may be called in 3 years at a call price of $1,020. The bond sells for $1,033.12. (Assume that the bond has just been issued.) 1. What is the bond's yield to maturity? 2. What is the bond's current yield? 3. What is the bond's yield on capital gain or loss? 4. d. What is the bond's yield to call? 5. If the investor's required rate of return is 7%, what type of bond is the bond in this question (par, premium, or discount bond) and why? Being this type of bond, is it likely called in three years? Explain your reasoning clearly.
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1 To find the yield to maturity of the bond we need to solve for the discount rate that equates the present value of the bonds cash flows to its current price of 103312 The bond has a semiannual coupo...Get Instant Access to Expert-Tailored Solutions
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Intermediate Financial Management
Authors: Eugene F Brigham, Phillip R Daves
14th Edition
0357516664, 978-0357516669
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