QUESTION $5(10$ MARKS$)$

Four $(4)$ years ago, your firm issued $$1,000$ par value $25-$year bonds with $7\%$ coupon rate and $10\%$

call premium.

$($a$)$ If these bonds are now called, calculate the actual yield to call for the investors who originally

purchased them at par Four $(4)$ years ago.

$(4$ marks$)$

$($b$)$ If the current interest rate on the bond is $5\%$ and the bonds were not callable, compute the

price would each bond sell.

$($c$)$ If the current interest rate on the bond is $8\%$ and the bonds were not callable, compute the

price would each bond sell.

$(3$ marks$)$