A bond has the following terms:
Annual interest $100
Term 15 years
a. What is the current price of the bond if comparable yields are 7 percent?
b. What are the current yield and yield to maturity given the price of the bond in the previous question?
c. If you expect the bond to be called at the end of the year, what would be the maximum price you should pay for the bond?
d. Is there a reason to expect that the bond will be called?
In this solution, we explain how to calculate the current price, current yield, and yield to maturity of the given bond.