Homework Answers
10. Callable bonds are bonds that can be called by the issuer before the maturity of the bond and leaves the investors with reinvestment risk.
So, the callable bonds are sold at a price which is less than the non callable bonds/ straight bonds due to the uncertainty of these bonds.
The price of callable bonds = price of straight bond - value of call option
So, price of straight bond = price of callable bonds + value of call option.
So, bond B = value of bond A + value of call option
So, the correct option is option B. Callable bonds will always sell at a price which is less than the straight bond because the call option adds value to an issuer.
Add Answer to:
10. A callable corporate bond can be purchased by the bond issuer before maturity for a...
A firm issues two bonds with 20-year maturities. Both are callable at $1,050. The first bond...
A firm issues two bonds with 20-year maturities. Both are callable at $1,050. The first bond is issued at a deep discount to par with a coupon rate of 4% and a price of $580 to yield 8.4%. The second is issued at par with a coupon rate of 8.9%. What is the yield-to-maturity of the par bond? If you expect rates to fall substantially in the next 2 years, which bond would you prefer to hold? In what sense...
Two bonds have identical times to maturity and coupon rates. One is callable at 105, the...
Two bonds have identical times to maturity and coupon rates. One is callable at 105, the other at 110. Which should sell at a higher price? The bond callable at 105 The bond callable at 110 Both bonds should sell at the same price Do not have enough information to answer this question
QUESTION 2 Call Premium A 7.75 percent corporate coupon bond is callable in four years for...
QUESTION 2 Call Premium A 7.75 percent corporate coupon bond is callable in four years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond? $1,077.50 $310.00 $1,000.00 $77.50
Callable bond. Corso Books has just sold a callable bond. It is a thirty-year semiannual bond...
Callable bond. Corso Books has just sold a callable bond. It is a thirty-year semiannual bond with an annual coupon rate of 12% and $1,000 par value. The issuer, however, can call the bond starting at the end of 10 years. If the yield to call on this bond is 5% and the call requires Corso Books to pay one year of additional interest at the call (2 coupon payments), what is the bond price if priced with the assumption...
A 3.75 percent corporate coupon bond is callable in four years for a call premuim of one year of coupon payments. Assumi...
A 3.75 percent corporate coupon bond is callable in four years for a call premuim of one year of coupon payments. Assuming a par value of $1,000 what is the price paid to the bondholder if the issuer calls the bond?
4. A 20-year maturity $1,000 par value 9% coupon bond paying coupons annually is callable in...
4. A 20-year maturity $1,000 par value 9% coupon bond paying coupons annually is callable in five years at a call price of $1,050. The bond currently sells at a yield to maturity of 8%. What is the yield to call? .01
Suppose that Verizon issues two bonds with identical coupon rates and maturity dates. One bond is...
Suppose that Verizon issues two bonds with identical coupon rates and maturity dates. One bond is callable, however, while the other is not Which bond will sell at a higher price? not enough information the non-callable bond the callable bond
Callable Bond • Example: Suppose an 8% coupon, 30-year maturity semi-annual bond sells for $1,150 and...
Callable Bond • Example: Suppose an 8% coupon, 30-year maturity semi-annual bond sells for $1,150 and is callable in 10 years at a call price of $1,100. • If the interest rate is 8% in 10 years, should the issuer call back the bond, i.e., repurchase the bond at the call price? • The issuer will repurchase the bond if the bond is worth more than $1100 in ten years. • PMT=40, N=40, FV=1000, 1/Y=8%, → PV=1000
Callable bond. Corso Books has just sold a callable bond. It is a thirty-year semiannual bond...
Callable bond. Corso Books has just sold a callable bond. It is a thirty-year semiannual bond with an annual coupon rate of 9% and $5,000 par value. The issuer, however, can call the bond starting at the end of 6 years. If the yield to call on this bond is 10% and the call requires Corso Books to pay one year of additional interest at the call (2 coupon payments), what is the bond price if priced with the assumption...
Callable bond. Corso Books has just sold a callable bond ... . It is a thirty-year...
Callable bond. Corso Books has just sold a callable bond ... . It is a thirty-year monthly bond with an annual coupon rate 12% and $1,000 par value. The issuer, however, can call the bond starting at the end of 12 years. If the yield to call on this bond is 9% and the call requires Corso Books to pay one year of additional interest at the call (12 coupon payments), what is the bond price if priced with the...
Two bonds have identical times to maturity and coupon rates. One is callable at 105, the other at 110. Which should sell at a higher price? The bond callable at 105 The bond callable at 110 Both bonds should sell at the same price Do not have enough information to answer this question
QUESTION 2 Call Premium A 7.75 percent corporate coupon bond is callable in four years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond? $1,077.50 $310.00 $1,000.00 $77.50
4. A 20-year maturity $1,000 par value 9% coupon bond paying coupons annually is callable in five years at a call price of $1,050. The bond currently sells at a yield to maturity of 8%. What is the yield to call? .01
Suppose that Verizon issues two bonds with identical coupon rates and maturity dates. One bond is callable, however, while the other is not Which bond will sell at a higher price? not enough information the non-callable bond the callable bond
Callable Bond • Example: Suppose an 8% coupon, 30-year maturity semi-annual bond sells for $1,150 and is callable in 10 years at a call price of $1,100. • If the interest rate is 8% in 10 years, should the issuer call back the bond, i.e., repurchase the bond at the call price? • The issuer will repurchase the bond if the bond is worth more than $1100 in ten years. • PMT=40, N=40, FV=1000, 1/Y=8%, → PV=1000
Callable bond. Corso Books has just sold a callable bond. It is a thirty-year semiannual bond with an annual coupon rate of 9% and $5,000 par value. The issuer, however, can call the bond starting at the end of 6 years. If the yield to call on this bond is 10% and the call requires Corso Books to pay one year of additional interest at the call (2 coupon payments), what is the bond price if priced with the assumption...
Most questions answered within 3 hours.
-
Industry standards suggest that 16% of new vehicles require
warranty service within the first year. Jones...
asked 5 minutes ago -
1) Comment of this statement: “A compiler transforms high-level
language statements directly into object codes”.
asked 8 minutes ago -
Calculate the molality, mole-fraction and percent mass of 28.9M
HF at 25 degrees Celcius of the...
asked 17 minutes ago -
A developmental psychologist believes that children raised in
bilingual families will have higher verbal fluency at...
asked 24 minutes ago -
A fast food meal has 5660 kJ of energy. A person uses energy at
a rate...
asked 36 minutes ago -
The pKb for a generic amine(R-NH2)) in
aqueous solution is 6.30. What is its pKa?
asked 37 minutes ago -
The following reactions have the indicated equilibrium constants
at a particular temperature: N2(g) + O2(g) ⇌...
asked 40 minutes ago -
Please Help ASAP.
1Consider the below code which iterates over a linked
list of n nodes...
asked 56 minutes ago -
Determine the air to fuel ratio of:
Canadian natural gas, with 93.9% methane, 4.2% ethane, 0.3%...
asked 56 minutes ago -
A manufacturer of power tools claims that the average amount of
time required to assemble their...
asked 58 minutes ago -
"electron-withdrawing substituents on carbon encourage back
donation", then on the next page he says that "greater...
asked 1 hour ago -
On December 31, 2016, the shareholders’ equity section of the
balance sheet of R & L...
asked 1 hour ago