ABC Corporation has issued $1000 face value bonds (sold at par) with a 7% coupon rate. These bonds will mature in 20 years. (Most bonds pay interest semi-annually)

a) If market interest rates have just risen to 9%, compute the value of these bonds.

b) If market interest rates have just fallen to 5%, compute the value of these bonds.

c) If these bonds are called in 5 years (when market yields are expected to be 5 %) at a call price of $1070, compute their current price.

d) Assuming no call provision, what is the yield to maturity on these bonds if their current price is $862.50?

Answer rating: 100% (QA)

To compute the value of the bonds under different scenarios we can use the present value of a bond formula The formula is Bond Value Coupon Payment 1 ... View the full answer