Question
Given the following information: XY Inc. 5% bond AB Inc. 14% bond Both bonds are for $1,000, mature in 20 years, and are rated AAA.
Given the following information: XY Inc. 5% bond AB Inc. 14% bond Both bonds are for $1,000, mature in 20 years, and are rated AAA. What should be the current market price of each bond if the interest rate on triple-A bonds is 10 percent? Which bond has a current yield that exceeds its yield to maturity? Which bond would you expect to be called if interest rates are 10 percent? If CD Inc. had a bond outstanding with a 5 percent coupon and a maturity date of 20 years but it was rated BBB, what would you expect its price to be relative to the XY Inc. bond?
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