Question
Company issued 8-year, 8 percent coupon with a par value of $1,000. The bonds may be called in 4 years at a call price of
Company issued 8-year, 8 percent coupon with a par value of $1,000. The bonds may be called in 4 years at a call price of $1,100. The bond currently sells for $1,250. You are required to answer the following questions: f) What is the bond's yield to maturity? (6 marks) g) What is the bond's current yield? (3 marks) h) What is the bond's capital gain or loss yield? (3 marks) i) What is the bond's yield to call? (6 marks) j) If you bought this bond do you think you would be more likely to earn a) the YTM or b) the YTC? (1 mark) You are required to calculate YTM and YTC by using iterative technique and linear interpolation.
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