. Questions 14 16 utilize related information. A Redwood Rest Homes, Inc. bond, which has a $1,000 par value and 4.2% stated annual coupon interest rate (with interest payments received semiannually), currently sells for a price of $955. The bond was issued three years ago with a 35-year maturity, but it can be called by the issuing firm as early as ten years after the original issue date. If the bond is called, the holder receives a premium of $42, in addition to the par value, at the call date. QUESTION: PLEASE REFER TO THE ATTACHMENT TO QUESTION 15 IN ANSWERING. Which of the five equations shown would you use in computing the bond holders YIELD TO CALL (also known as yield to first call, because we make the assumption that the bond would be called at the earliest possible date)?

YTC Attachment, Form C, Q. 15.pdf

95 KB

• A. Equation 1
• B. Equation 2
• C. Equation 3
• D. Equation 4
• E. Equation 5

Reset Selection

In answering question 14 on Part 2 of the exam, Which equation would you use in computing the bond holder's yield to maturity, please refer to the following five equations. 70 a. EQUATION 1: $955 = $42 + $1,000 70 b. EQUATION 2: $1,000 = $21 + $955 c. EQUATION 3: $955 = $21 (-) )" (44) () (4-47) +$1,042(122) * (47) (****1.0 (37)" 32 d. EQUATION 4: $1,955 = $21 + $1,000 1+r e. EQUATION 5: $955 = $21