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YIELD TO CALL Six years ago the Templeton Company issued 24-year bonds with an 13 % annual coupon rate at their $1,000 par value. The
YIELD TO CALL Six years ago the Templeton Company issued 24-year bonds with an 13 % annual coupon rate at their $1,000 par value. The bonds had an 8% call premium, with 5 years of call protection Today Templeton called the bonds. a. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. % b. Why the investor should or should not be happy that Templeton called them. I. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM. If investors wish receipts, they can now do so reinvest their interest thigher interest rates. II. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM. If investors wish receipts, they must do reinvest their interest o at lower interest rates III. Since the bonds have been called, investors will receive a call premium and can declare a capital gain on their tax returns IV. Since the bonds have been called, investors will no longer need to consider reinvestment rate risk. e t la n terest rates must have fallen sufficiently such that the YTC is less than the YTM, If investors wish to reinvest their interest receipts, they must V rates
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