Fincorp issues two bonds with 18-year maturities. Both bonds are callable at $1,050. The first bond is issued at a deep discount with a coupon rate of 4% and a price of $640 to yield 8.0%. The second bond is issued at par value with a coupon rate of 10.60% Required: a. What is the yield to maturity of the par bond? (Round your answer to 2 decimal places.) Yield to maturity % b. If you expect rates to fall substantially in the next two years, which bond would you prefer to hold? Bond with a coupon rate 4% Bond with a coupon rate 10.60%
Fincorp issues two bonds with 18-year maturities. Both bonds are callable at $1,050. The first bond is issued at a deep discount with a coupon rate of 4% and a price of $640 to yield 8.0%. The second bond is issued at par value with a coupon rate of 10.60% Required: a. What is the yield to maturity of the par bond? (Round your answer to 2 decimal places.) Yield to maturity % b. If you expect rates to fall substantially in the next two years, which bond would you prefer to hold? Bond with a coupon rate 4% Bond with a coupon rate 10.60%
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:Fincorp issues two bonds with 18-year maturities. Both bonds are callable at $1,050. The first bond is issued at a deep discount with a
coupon rate of 4% and a price of $640 to yield 8.0%. The second bond is issued at par value with a coupon rate of 10.60%
Required:
a. What is the yield to maturity of the par bond? (Round your answer to 2 decimal places.)
Yield to maturity
%
b. If you expect rates to fall substantially in the next two years, which bond would you prefer to hold?
OBond with a coupon rate 4%
Bond with a coupon rate 10.60%
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