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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Transcribed Image Text:6:24 1
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Il 5G
Done
suppose you purchase of 15 year 10% annual
coupon $1000 par value bond but the bond originally
could be called after 10 years at a call price of 1100.
1 year later interest rates have fallen from 10% to
5% causing the value of the bond to rise to
$1494.93. What is the bonds yield to call round your
answer to two decimal places
Expert Solution
Step 1
Information Provided:
- Bond Period = 15 years
- Coupon rate = 10%
- Par value = $1000
- Call price = $1100
- Decline in interest rate = 5%
- New Bond price = $1494.93
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