A 20-year annual coupon bond with a face value of $100 and a coupon rate of 10% was originally sold at par. The bond is callable and the issuer has the right to repurchase it after five years at $105. After two years of life of the bond, the interest rates for this type of instrument drop to 9%. Calculate: a) the price of the bond after two years. b) Yield until redemption.

A 20-year annual coupon bond with a face value of $100 and a coupon rate of 10% was originally sold at par. The bond is callable and the issuer has the right to repurchase it after five years at $105. After two years of life of the bond, the interest rates for this type of instrument drop to 9%. Calculate: a) the price of the bond after two years. b) Yield until redemption.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 4P

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a) the price of the bond after two years.

b) Yield until redemption.

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