It is now January 1, 2013, and you are considering the purchase of an outstanding bond that was issued on January 1, 2010. It has a 7 percent annual coupon and had a 30-year original maturity. (It matures on December 31, 2039.) There were 11 years of call protection (until December 31, 2020), after which time it can be called at 107.5 percent of par, or $1,075. Interest rates have fallen since the bond was issued, and it is now selling at 114.5 percent of par, or $1,145. If you bought this bond, what rate of return would you probably earn, assuming you hold the bonds until they either mature or are called? a. 5.91% b. 7.00% c. 5.48% d. 6.02% e. 4.78%
It is now January 1, 2013, and you are considering the purchase of an outstanding bond that was issued on January 1, 2010. It has a 7 percent annual coupon and had a 30-year original maturity. (It matures on December 31, 2039.) There were 11 years of call protection (until December 31, 2020), after which time it can be called at 107.5 percent of par, or $1,075. Interest rates have fallen since the bond was issued, and it is now selling at 114.5 percent of par, or $1,145. If you bought this bond, what rate of return would you probably earn, assuming you hold the bonds until they either mature or are called? a. 5.91% b. 7.00% c. 5.48% d. 6.02% e. 4.78%
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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- It is now January 1, 2013, and you are considering the purchase of an outstanding bond that was issued on January 1, 2010. It has a 7 percent annual coupon and had a 30-year original maturity. (It matures on December 31, 2039.) There were 11 years of call protection (until December 31, 2020), after which time it can be called at 107.5 percent of par, or $1,075. Interest rates have fallen since the bond was issued, and it is now selling at 114.5 percent of par, or $1,145. If you bought this bond, what
rate of return would you probably earn, assuming you hold the bonds until they either mature or are called?
|
a. |
5.91% |
|
|
b. |
7.00% |
|
|
c. |
5.48% |
|
|
d. |
6.02% |
|
|
e. |
4.78% |
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