Google CEO Sundar Pichai purchased a bond that has 5% coupon with 4 yrs remaining maturity for $102. Face value is 100. Coupon is paid on a semiannual basis. The bond is callable in 2 yrs and onward. The strike prices (call schedule) are given next: 101.5 (yr 2), 101 (yr 3), and 100 (yr 4) Which of the following is most likely to be the bond’s annual effective yield to second call? a.4.26% b.4.38% c.4.56% d.4.64%
Google CEO Sundar Pichai purchased a bond that has 5% coupon with 4 yrs remaining maturity for $102. Face value is 100. Coupon is paid on a semiannual basis. The bond is callable in 2 yrs and onward. The strike prices (call schedule) are given next: 101.5 (yr 2), 101 (yr 3), and 100 (yr 4) Which of the following is most likely to be the bond’s annual effective yield to second call? a.4.26% b.4.38% c.4.56% d.4.64%
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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Google CEO Sundar Pichai purchased a bond that has 5% coupon with 4 yrs remaining maturity for $102. Face value is 100. Coupon is paid on a semiannual basis. The bond is callable in 2 yrs and onward. The strike prices (call schedule) are given next: 101.5 (yr 2), 101 (yr 3), and 100 (yr 4) Which of the following is most likely to be the bond’s annual effective yield to second call? a.4.26% b.4.38% c.4.56% d.4.64% |
Expert Solution
Given Information:
Coupon rate is 4%
Time to maturity is 4 years
Price of bond is $102
Face Value is 100
Callable after 2 years
Callable price in second year is 101.5
Callabe price in second call is 101
To Find:
- Effective yield to call
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