A semi-annual coupon bond that has 6.0% per annum coupon rate, 20 years to maturity, and par

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Question:

A semi-annual coupon bond that has 6.0% per annum coupon rate, 20 years to maturity, and par value $1000, has a price of $1050.

a) What is the yield to maturity? The yield to maturity is (rounded to 4 decimal places)1.

b) What is the current yield? The current yield is (rounded to 4 decimal places)2.

c) An investor holds the bond for 8 years, with a reinvestment rate of x% throughout the 8 years. At the end of the 8 years, he sells the bond at a yield to maturity of 5% per annum. Suppose the realized compound yield is 6.5% per annum, what is the value of the reinvestment rate x% throughout the 8 years?

i) The final value at the end of 8 years is (rounded to 2 decimal places)3.

ii) The selling price of the bond at the end of 8 years is (rounded to 2 decimal places)4.

iii) The future value of all reinvested coupons at the end of 8 years is (rounded to 2 decimal places)5.

iv) The reinvestment rate x% throughout the 8 years is (rounded to 4 decimal places)6.

d) Suppose the bond is callable 4 years from now. How much should the company pay the bondholders, i.e. the call value, upon calling the bond 4 years from now in order for the yield to call to equal the yield to maturity now?

The call value should be (rounded to 2 decimal places)7.