Answer to Question 2:
Par
Value = $1,000
Annual Coupon = $70
Time to Maturity = 7 years
Required Return = 8.50%
Price of
Bond = $70 * PVIFA(8.50%, 7) + $1,000 * PVIF(8.50%, 7)
Price of Bond = $70 * (1 - (1/1.085)^7) / 0.085 + $1,000 *
(1/1.085)^7
Price of Bond = $70 * 5.118514 + $1,000 * 0.564926
Price of Bond = $923.22
Answer to Question 3:
Call
Value = $1,050
Current Price = $1,280
Time to Call = 5 years
Annual Coupon = $135
Let Annual YTC be i%
$1,280 = $135 * PVIFA(i%, 5) + $1,050 * PVIF(i%, 5)
Using
financial calculator:
N = 5
PV = -1280
PMT = 135
FV = 1050
I = 7.45%
Yield to Call = 7.45%
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