Lambert Energy Bhd issued a 5% bond with 10 years to maturity three years ago. The bond
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Question:
Lambert Energy Bhd issued a 5% bond with 10 years to maturity three years ago. The bond is callable after 6 years of issuing. The par value of the bond is RM1,000. The call price at year 6 will be at a premium of two-year coupon payment of which the coupon rate has been reduced by 1%.
Required:
i. Calculate the straight bond price if the required rate of return is 8%.
ii. Determine the maximum price if the bond is to be called in year 6.
iii. Advise on the risk of the callable bonds to investors (3m)
Related Book For
Finance Applications and Theory
ISBN: 978-0077861681
3rd edition
Authors: Marcia Cornett, Troy Adair
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