Question: Please Help me with question 3 and 4: Geico Corp. currently has a AA rated corporate bond outstanding, with a coupon rate of 5.35%, paid
Please Help me with question 3 and 4:
- Geico Corp. currently has a AA rated corporate bond outstanding, with a coupon rate of 5.35%, paid semi-annually, due to mature in three years at a par value of $1,000. If the bonds required rate of return (or yield to maturity) is 3.48%, at what price is this bond expected to sell?
- The City of Providence currently has an BBB rated municipal bond outstanding, with a coupon rate of 4.84%, paid semi-annually, due to mature in eight years, and callable in three years (at a call price of $1,025). If the bond has a par value of $1,000 and is currently priced at $1,046, calculate:
- The bonds current yield
- The bonds yield to maturity
- The bonds yield to call
- Based on the characteristics of the bonds, why might an investor expect the yield to maturity of the Geico bond (in Question #1) to be lower than the yield to maturity of the City of Providence bond above?
- Based on the characteristics of the bonds, why might an investor expect the yield to maturity of the Geico bond (in Question #1) to be higher than the yield to maturity of the City of Providence bond above?
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