Question
Company Q is rated A and has 3 bonds issued 2 years go. All the bonds were issued at par. Bond A is a 6%
Company Q is rated A and has 3 bonds issued 2 years go. All the bonds were issued at par. Bond A is a 6% 10-year bond with yield to maturity of 5% and par value of $100. Bond B is callable bond and Bond C is a puttable bond, both with 10 years to maturity and par value of $100. All bonds pay coupons annually. (a) Compute the current price of Bond A (b) Among the 3 bonds (A,B and C), which bond should have the highest yield to maturity at the time of issue? Explain. (c) Among the 3 bonds (A,B and C), which bond should have the lowest yield to maturity at the time of issue? Explain. (d) Company R is rated BBB and plans to issue a new 10-year bond. In pricing this bond determine whether the yield to maturity should be set higher or lower on its bond relative to similar bonds by Company Q. Explain your answer.
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