Company A issued zero coupon bonds 5 years ago at a price of $200 per bond. The bond has a par value of $1000 and a 20 year maturity when they were isued. The bonds were callable 10 years after the issue date at a price 7 percent over their accrued value on the call date. If the bonds sell for $225 in the market today what is the annual rate of return?
Issue Price of the bond = $200
Time to maturity = 20 years
Therefore at the time of issue of bond, yield to maturity = (1000/200)^(1/20)-1= ...
The solution calculates Yield to maturity and Yield to call of a bond to determine the annual rate of return.