A 20-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 5 years at a call price of $1,040. The bond sells for $1,100. (Assume that the bond has just been issued.)
a. What is the bond's yield to maturity?
b. What is the bond's current yield?
c. What is the bond's capital gain or loss yield?
d. What is the bond's yield to call?
e. How would the price of
the bond be affected by changing the going market interest rate? (Hint:
Conduct a sensitivity analysis of price to changes in the going market
interest rate for the bond. Assume that the bond will be called if and only
if the going rate of interest falls below the coupon rate. That is an
oversimplification, but assume it anyway for purposes of this problem.)
the bond be affected by changing the going market interest rate? (Hint:
Conduct a sensitivity analysis of price to changes in the going market
interest rate for the bond. Assume that the bond will be called if and only
if the going rate of interest falls below the coupon rate. That is an
oversimplification, but assume it anyway for purposes of this problem.)
is 10/25/2010. Assume further that a
12%, 10-year bond was issued on 7/1/2010, pays interest semiannually (January
1 and July 1), and sells for $1,100.
Use your spreadsheet to find the bond’s yield.
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