Purchase Solution

Bond Price and Yield to Call of Bonds

Not what you're looking for?

Ask Custom Question

1) Consider a bond with a par value of $1,000. The coupon is paid semi-annually and the market interest rate (effective interest rate) is 10 percent. How much would you pay for the bond if:
a) The coupon rate is 8% and the remaining time to maturity is 20 years?
b) The coupon rate is 12% and the remaining time to maturity is 15 years?

2) A 20-year maturity 9% coupon bond paying coupons semiannually is callable in 5 years at a call price of $1,060. The bond currently sells at a yield to maturity of 7%. What is the yield to call?

Purchase this Solution

Solution Summary

This solution is comprised of a detailed explanation to calculate bond price and yield to call of bonds.

Solution Preview

1) Consider a bond with a par value of $1,000. The coupon is paid semi-annually and the market interest rate (effective interest rate) is 10 percent. How much would you pay for the bond if:
a) The coupon rate is 8% and the remaining time to maturity is 20 years?
b) The coupon rate is 12% and the remaining time to maturity is 15 years?

a) We need to calculate how much the bonds have been issued by using the formula as follows: -

where B is the bond price
C is the coupon payment
r is the market interest rate
n is the period
...

Purchase this Solution


Free BrainMass Quizzes
Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Motivation

This tests some key elements of major motivation theories.