Answered step by step
Verified Expert Solution
Question
1 Approved Answer
please answer Seven years ago the Templeton Company issued 29 -year bonds with an 11% annual coupon rate at their 51,000 par value. The bonds
please answer
Seven years ago the Templeton Company issued 29 -year bonds with an 11% annual coupon rate at their 51,000 par value. The bonds had a 6% call premium, with 5 years of call protection. Today Templeton called the bonds. Compyte the realized rate of retum far an investor who parchased the bondi when they were issued and held them until they were colled. Round your answer to two detimal places. Why should or should not the investor be happy that Templeton called them? 1. Investors should be happy. Since the bonds have been calied, interest rates must have risen wufticently such that the YTC is greater than the YTM. If investors wish to reinvest their interest receipts, they can now do to at higher interest rotes: II. Investors should be happy. Since the bonds thave been catied, investoes will receive o calforem um and can deciare a capizal gain an their tax retums. II1. Investors should be happy. Since the bonds have been called; nvesters will na lenger need to consider reinvestiment rate risk. IV. Investors should not be happy. Since the bonds have been calied, miterest rates must have fallen sufficiently such that the YTC is lets than the YTM. If investors witis to reinvest their interest receipts, they must do so at lower interest fates Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started