A(n) 8.5%,20-year bond has a par value of $1,000 and a call price of $1,125. (The bond's
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A(n) 8.5%,20-year bond has a par value of $1,000 and a call price of $1,125.
(The bond's first call date is in 5 years.) Coupon payments are made semiannually (so use semiannual compounding where appropriate).
a. Find the current yield, YTM, and YTC on this issue, given that it is currently being priced in the market at $1,250. Which of these 3 yields is the highest? Which is the lowest? Which yield would you use to value this bond? Explain.
b. Repeat the 3 calculations above, given that the bond is being priced at $900. Now which yield is the highest? Which is the lowest? Which yield would you use to value this bond? Explain.
Related Book For
Financial management theory and practice
ISBN: 978-1439078099
13th edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
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