8) You purchase a 30-year 10% annual coupon corporate bond with a face value of 1,000...
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8) You purchase a 30-year 10% annual coupon corporate bond with a face value of 1,000 at a yield rate of 8%. The amount you pay for the bond is based on your (erroneous) assumption that the bond is not callable. However, it turns out that the bond actually is callable, with a call price of 1,050, and can be called by the issuing corporation after five years. Immediately after the 17th coupon payment, the issuing corporation redeems the bond. Calculate the effective annual yield you actually achieved on this 17-year investment. 8) You purchase a 30-year 10% annual coupon corporate bond with a face value of 1,000 at a yield rate of 8%. The amount you pay for the bond is based on your (erroneous) assumption that the bond is not callable. However, it turns out that the bond actually is callable, with a call price of 1,050, and can be called by the issuing corporation after five years. Immediately after the 17th coupon payment, the issuing corporation redeems the bond. Calculate the effective annual yield you actually achieved on this 17-year investment.
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