Question

9) Six years ago, Antea Corp. sold a 20-year bond with a 14% annual coupon rate, and a 9% call premium over par. Today, Antitea called the bonds. The bonds originally were sold at their par value of $1000 at the time of issue. Compute the realized rate of return for investors who purchased the bonds when they were issued and who surrender the bonds today at the call price

Please show the steps to finding the answer using a *Financial Calculator*! Thank you.

Answer 1

here:

coupon rate = 14% = 0.14

coupon value = face value*c = 1000*0.14 = 140

call price =( 1+call premium)*face value = (1+9%)*1000 = 1.09*1000 = 1090

1) 1st enter 140 in the calculator and then press PMT.

2) then enter -1000 in the calculator and then press PV.

3) then enter 1090 in the calculator and then press FV.

4) then enter 6 in the calculator and then press N .

5) then press I/Y .

you will get the realized return = 15.03%

here,

purchase price of bond = $1000

bond is redeemed at call price after 6 years.