Question
Sofia purchases a $6,000 7% eight-year par-value bond with annual coupons. If held to maturity, her yield is 6.5%. The bond is callable at the
Sofia purchases a $6,000 7% eight-year par-value bond with annual coupons. If held to maturity, her yield is 6.5%. The bond is callable at the end of two years for $6,400 and at the end of years five, six, and seven for $6,300.
(a)
Find Sofia's minimal yield for the period she holds the bond. (Round your answer to two decimal places.)
%
(b)
If the bond is called prior to maturity, Sofia has made arrangements to have the redemption amount accumulate in her i = 5.1% savings account until the end of the eight years. What is her minimal yield for the eight-year period of the bond? (The coupons are not reinvested. Round your answer to two decimal places.)
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