Question
The Plush Corporation is planning on expanding its operations and decides to fund this by issuing a new series of bonds on January 1, 2020.
The Plush Corporation is planning on expanding its operations and decides to fund this by issuing a new series of bonds on January 1, 2020. The 10% coupon bonds will be sold at par ($1 200), and will mature on December 31, 2044. Coupon payments are made semi-annually. a. What will be the YTM of Plushs bonds on January 1, 2020? b. What will be the price of the bond on January 1, 2027, given interest rates is expected to fall to 8%? c. Find the expected current yield and expected capital gains yield on the bond on January 1, 2027, given the price as determined in Part b above d. If Plush Corporation bonds are expected to be sold for $1 100 on July 1, 2037, what is the expected rate of return on that date? e. What would be expected current yield and expected capital gains yield on July 1, 2037? f. Would you buy Plush bonds when they are selling for $1 100 if you require a rate of return of 13% per year. (Show calculations to support your answer)
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