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The bonds pay interest semiannually, will mature in 15_years, and have a coupon rate of 6% on a face value of $1,000. Currently, the bonds
The bonds pay interest semiannually, will mature in 15_years, and have a coupon rate of 6% on a face value of $1,000. Currently, the bonds are selling for $920. a. If your required return is 6.80% for bonds in this risk class, what is the highest price you would be willing to pay? (Use the Pv function.) b. What is the current yield of these bonds? c. What is the yield to maturity on these bonds if you purchase them at the current price? (Use the Rate function.) d. If you hold the bonds for one year, and interest rates do not change, what total rate of return will you earn, assuming that you pay the market price? Why is this different from the current yield and YTM? e. If the bonds can be called in three years with a call premium of 4% of the face value, what is the yield to call? (Use the Rate function.) f. Now assume that the settlement date for your purchase is 7/30/2020, the maturity date is 7/30/2035, and the first call date is 7/30/2023. Using PRicE and YIELD recalculate your answers to parts a, c, and d. g. If market interest rates remain unchanged, do you think it is likely that the bond will be called in three years? Why or why not? h. Create a chart that shows the relationship of the bond's price to your required return. Use a range of 0% to 15% in calculating the prices
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