Given the following information: XY Inc. 5% bond AB Inc. 14% bond Both bonds are for $1,000,

Question:

Given the following information:

XY Inc. 5% bond

AB Inc. 14% bond

Both bonds are for $1,000, mature in 20 years, and are rated AAA.

a) What should be the current market price of each bond if the interest rate on triple-A bonds is 10 percent?

b) Which bond has a current yield that exceeds its yield to maturity?

c) Which bond would you expect to be called if interest rates are 10 percent?

d) If CD Inc. had a bond outstanding with a 5 percent coupon and a maturity date of 20 years but it was rated BBB, what would you expect its price to be relative to the XY Inc. bond?

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... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...