Question
Bed Bath and Beyond currently has 12% callable bonds that mature in 10 years. The bonds may be called in 5 years at a 5%
Bed Bath and Beyond currently has 12% callable bonds that mature in 10 years. The bonds may be called in 5 years at a 5% premium to par; par is $1,000. The bonds pay interest semi-annually and are priced to yield 18% to maturity. What is the current price of the bonds? What is the current yield of these bonds? Calculate the yield to call of the bonds. Why is the yield to maturity and yield to call so high for these bonds? (Referencing the 10-year treasury which yields about 3.75%). Which rate is more relative the yield to call or the yield to maturity?
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