Four years ago, your firm issued $1,000 par, 25-year bonds, with a 7 percent coupon rate and

Question:

Four years ago, your firm issued $1,000 par, 25-year bonds, with a 7 percent coupon rate and a 10 percent call premium.

a. If these bonds are now called, what is the approximate yield to call for the investors who originally purchased them?

b. If these bonds are now called, what is the actual yield to call for the investors who originally purchased them at par?

c. If the current interest rate on the bond is 5 percent and the bonds were not callable, at what price would each bond sell?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...

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a Assuming annual compounding Of course with financial calculators and spreadsheets such an approximation is not appropriate It assumes for example the average investment is 1050 when the investor purchasing the bond four years ago invested 1000 b Using a financial calculator ...View the full answer

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