In 2006, BCC issued 85⁄8 percent debentures that will mature on December 1, 2046. a. If an investor purchased one of these bonds ($1,000 denomination) on December 1, 2016, for $1,050, determine the yield-to-maturity. Explain why investors would be willing to pay $1,050 on December 1, 2016, for one of these bonds when they are going to receive only $1,000 when the bond matures in 2046. b. The BCC 85⁄8 percent debentures are callable by the company on December 1, 2021, at $1,044.50. Determine the yield to call as of December 1, 2016, assuming that BCC calls the bonds on that date.
In 2006, BCC issued 85⁄8 percent debentures that will mature on December 1, 2046. a. If an investor purchased one of these bonds ($1,000 denomination) on December 1, 2016, for $1,050, determine the yield-to-maturity. Explain why investors would be willing to pay $1,050 on December 1, 2016, for one of these bonds when they are going to receive only $1,000 when the bond matures in 2046. b. The BCC 85⁄8 percent debentures are callable by the company on December 1, 2021, at $1,044.50. Determine the yield to call as of December 1, 2016, assuming that BCC calls the bonds on that 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
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In 2006, BCC issued 85⁄8 percent debentures that will mature on December 1, 2046.
a. If an investor purchased one of these bonds ($1,000 denomination) on December 1, 2016, for $1,050, determine the yield-to-maturity. Explain why investors would be willing to pay $1,050 on December 1, 2016, for one of these bonds when they are going to receive only $1,000 when the bond matures in 2046.
b. The BCC 85⁄8 percent debentures are callable by the company on December 1, 2021, at $1,044.50. Determine the yield to call as of December 1, 2016, assuming that BCC calls the bonds on that date.
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