Question
Suppose a company issued two bonds, that have the same degree of default risk and mature in 20 years. Both bonds are callable at $1,100.
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Suppose a company issued two bonds, that have the same degree of default risk and mature in 20 years. Both bonds are callable at $1,100. The first bond has a par value of $1,000, a coupon rate of 5%, makes annual coupon payments, and currently sells for $620. The second one also has a par value of $1,000, pays coupon rate of 7.5% annually, and its market price is $1,000.
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i) Calculate the yield to maturity of both bonds. All else being equal, explain which bond the issuing company and the investors in bonds would find more attractive. Show your calculations
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