Callable bond. Corso Books has just sold a callable bond. It is a thirty-year quarterly bond with an annual coupon rate of 5% and $5,000 par value. The issuer, however, can call the bond starting at the end of 8 years. If the yield to call on this bond is 9% and the call requires Corso Books to pay one year of additional interest at the call (4 coupon payments), what is the bond price if priced with the assumption that the call will be on the first available call date? What is the bond price if priced with the assumption that the call will be on the first available call date?
Callable bond. Corso Books has just sold a callable bond. It is a thirty-year quarterly bond with an annual coupon rate of 5% and $5,000 par value. The issuer, however, can call the bond starting at the end of 8 years. If the yield to call on this bond is 9% and the call requires Corso Books to pay one year of additional interest at the call (4 coupon payments), what is the bond price if priced with the assumption that the call will be on the first available call date? What is the bond price if priced with the assumption that the call will be on the first available call date?
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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Please see attached. Definitions:
Callable bond is a bond that the issuer has the right to buy back prior to maturity at a predetermined price.
Coupon rate is the interest rate for the bond coupons, expressed in annual percentage terms.
Yield to call is the discount
Transcribed Image Text:Callable bond. Corso Books has just sold a callable bond. It is a thirty-year quarterly bond with an annual coupon rate of 5% and $5,000 par value. The issuer,
however, can call the bond starting at the end of 8 years. If the yield to call on this bond is 9% and the call requires Corso Books to pay one year of additional interest at
the call (4 coupon payments), what is the bond price if priced with the assumption that the call will be on the first available call date?
What is the bond price if priced with the assumption that the call will be on the first available call date?
$
(Round to the nearest cent.)
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