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Suzie would like to invest in fixed income securities and found one that could be interesting: Circus Inc. Circus Inc. pays semi-annual coupons. These bonds
- Suzie would like to invest in fixed income securities and found one that could be interesting: Circus Inc. Circus Inc. pays semi-annual coupons. These bonds are currently being issued with a coupon rate of 8%, a face value of $1,000, a maturity of 20 years and a yield to maturity of 9%.
- a) Calculate the value of Circus's bond.
- b) Suzie claims that the 9% return will be guaranteed at maturity, and this is what she will make with certainty. Do you agree, why? Give a reason and explain clearly.
- c) For each of the following bond characteristics, please indicate the impact on the required return (increases or decreases) for Circus' Bond and why.
- 1. Redemption option at the discretion of Circus
- 2. Presence of a sinking fund by Circus' Bond
- 3. A maturity of 30 years for Circus' Bond
- 4. AAA Superior Credit Rating for Circus' Bond
- 5. A collateral (fixed assets) attached to Circus' Bond
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