In the section on the yield to call, a bond pays annual interest of $80 and matures after ten years. The bond is valued at $1,147 if the comparable rate is 6 percent and the bond is held to maturity. If, however, an investor expects the bond to be called for $1,050 after five years, the value of the bond would be $1,122. (See footnote 5.) Investor A expects the bond to be called and investor B expects the bond not to be called. Investor A sells the bond to B for $1,122.
What is the annual return earned by B if the bond is not called?
Why is this yield greater than the 6 percent earned on comparable securities?© BrainMass Inc. brainmass.com June 4, 2020, 2:59 am ad1c9bdddf
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Annual return can be computed using the following ...
The annual rate of bonds is examined.