Question
On January 1, 2014, a city issues $30,000,000 principal amount of bonds. The issue contains three bonds, each having a principal amount of $10,000,000. Bond
On January 1, 2014, a city issues $30,000,000 principal amount of bonds. The issue contains three bonds, each having a principal amount of $10,000,000. Bond X bears interest at 5 percent per year and matures on January 1, 2019. Bond Y bears interest at 6 percent per year and matures on January 1, 2022. Bond Z bears interest at 7 percent per year and matures on June 1, 2024. Bonds Y and Z are callable by the issuer at par plus accrued interest beginning on January 1, 2019. a) Compute the yield on the issue by assuming that each bond will remain outstanding to its stated maturity date. b) Compute the yield on the issue by assuming that the bonds will be redeemed on their earliest redemption date.
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