3) A 10 year zero coupon bond maturing at $1000 is callable at the 7 year point for $900.
a) What price should an investor pay if they want a (annual effective) yield of at least 5%?
b) What will their yield be if the bond is called early?
Part A:
Price of Bond = PV of CFs from it.
= CF * PVF (r%. n)
= $ 1000 * PVF(5%,10)
= $ 1000 * 0.6139
= $ 613.91
Part B:
Yield of Zero Coupon Bond = [ Maturity Value / Price of Bond ] ^ (1/n ) - 1
= [ 900 / 613.91 ] ^ ( 1 / 7 ) - 1
= 1.4660 ^ ( 1/7) - 1
= 1.0562 - 1
= 0.0562 i.e 5.62%
3) A 10 year zero coupon bond maturing at $1000 is callable at the 7 year...
3) A 10 year zero coupon bond maturing at $1000 is callable at the 7 year point for $900. a) What price should an investor pay if they want a (annual effective) yield of at least 5%? b) What will their yield be if the bond is called early?
A 10 year zero coupon bond maturing at $1000 is callable at the 7 year point for $900. a) What price should an investor pay if they want a (annual effective) yield of at least 5%? b) What will their yield be if the bond is called early? full formulas and explanation will give thumbs up I think in general early, sorry not sure but can u just do what u think thnx
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