1. Determine the current market prices of the following $1,000 bonds if the comparable rate is 10% and answer the following questions.
XY 5.25%, (interest paid annually) for 20 years.
AB 14 %, (interest paid annually) for 20 years.
a. Which bond has a current yield that exceeds the yield to maturity?
b. Which bond may you expect to be called? Why?
c. If CD, Inc. has a bond with a 5¼ percent coupon and a maturity of 20 years but which was lower rated, what would be its price relative to the XY, Inc., bond? Explain.
2. You purchase a bond for $875. It pays $80 a year (that is, the semiannual coupon is 4%), and the bond matures after 10 years. What is the yield to maturity?
The solution explains some bond questions relating to current market price, current yield, YTM, when will it be called