Question

A company issues a 15-year $5500 bond, redeemable at 104 with bond interest at j2j2 = 7%. The bond is callable at the end of 5 years for $4005 or at the end of 10 years for $5555. Determine the price to guarantee the investor a yield of j2j2 = 9%.

Answer 1

IF ANY QUERY, FEEL FREE TO ASK THEM AND GET RESOLVED Solution Bond Price Formula PV(rate,period,-coupon payment, -value) 1 Bond Price redeemed at maturity Formula $4,662.85 =PV(9%/2,15*2,-5500*7%/2,-5500*104%) 2 Bond Price called at 5 year Formula $4,102.13 =PV(9%/2,5*2,-5500*7%/2,-4005) 3 Bond Price called at 10 year Formula $4,807.37 =PV(9%/2,10*2,-5500*7%/2,-5555) Hence, bond price must be $4102.13 or say $4102 (lowest of all).