1. Four years ago, your firm issued $1,000 par, 25-year bonds, with a 7 percent coupon rate and a 10 percent call premium. a. If these bonds are now called, what is the approximate yield to call for the Investors who originally purchased them? b. If these bonds are now called, what is the actual yield to call for the investors who originally purchased them at par? c. If the current interest rate on the bond is 5 percent and the bonds were not callable, at what price would each bond sell?
1. Four years ago, your firm issued $1,000 par, 25-year bonds, with a 7 percent coupon rate and a 10 percent call premium. a. If these bonds are now called, what is the approximate yield to call for the Investors who originally purchased them? b. If these bonds are now called, what is the actual yield to call for the investors who originally purchased them at par? c. If the current interest rate on the bond is 5 percent and the bonds were not callable, at what price would each bond sell?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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1. Four years ago, your firm issued $1,000 par, 25-year bonds, with a 7 percent
coupon rate and a 10 percent call premium.
a. If these bonds are now called, what is the approximate yield to call for the
investors who originally purchased them?
b. If these bonds are now called, what is the actual yield to call for the
investors who originally purchased them at par?
c. If the current interest rate on the bond is 5 percent and the bonds were not
callable, at what price would each bond sell?
2. Assume that you purchased an 8 percent, 20-year, $1,000 par, semiannual
payment bond priced at $1,012.50 when it has 12 years remaining until maturity.
Compute:
a. Its promised yield to maturity
b. Its yield to call if the bond is callable in three years with an 8 percent
premium
3. Calculate the Macaulay duration of an 8 percent, $1,000 par bond that matures in
three years if the bonds YTM is 10 percent and interest is paid semiannually.
Calculate this bond's duration.
4. Two years ago, you acquired a 10-year zero coupon, $1,000 par value bond at a
12 percent YTM. Recently, you sold this bond at an 8 percent YTM, Using
semiannual compounding, compute the annualized horizon return for this
investment.
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