Question: Question B1 Part I A 10%, 25-year callable bond has a par value of $1,000 and a call price of $1,075. The first call date

Question B1

Part I

A 10%, 25-year callable bond has a par value of $1,000 and a call price of $1,075. The first call date is in five years. Coupon payments are made semiannually.

Required:

(a) Compute the current yield, yield to maturity and yield to call of the bond respectively, given that it is currently priced at $1,200. (10 marks)

(b) Based on your answers in part (a), which yield is the most appropriate for investor to value the bond. Justify your answer. (4 marks)

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