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Fincorp issues two bonds with 2 0 - year maturities. Both bonds are callable at $ 1 , 0 5 0 . The first bond
Fincorp issues two bonds with year maturities. Both bonds are callable at $ The first bond is issued at a deep discount with a coupon rate of and a price of $ to yield The second bond is issued at par value with a coupon rate of Answer the following: a What is the yield to maturity of the par bond? Why is it higher than the yield of the discount bond? b If you expect rates to fall substantially in the next two years, which bond would you prefer to hold? c In what sense does the discount bond offer "implicit call protection"?
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