Yield to Call and Yield to maturity bonds problems.
1) YIELD TO CALL: Six yrs ago, the Singleton Co issued 20-yr bonds with 14 percent annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, with 5 yrs of call protection. Today singleton called the bonds, Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Explain why the investor should or should not be happy that Singleton called them
2) Yield to maturity: Heyman Co bonds have 4 yrs left to maturity, Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 9%.
a. What is the yield to maturity at a current market price of (1) $829 or (2) $1,104?
b. Would you pay $829 for each bond if you thought that a "fair" market interest rate for such bonds was 12 %-that is if rd=12% Explain your answer.
This solution is comprised of a detailed explanation and calculation to compute Yield to Call and Yield to maturity of bonds.
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- bond - yield to maturity Heyman, yield to call Singleton.doc