Question

A company issues a 30-year $5500 bond, redeemable at 98 with bond interest at j2 = 6%. The bond is callable at the end of 20 years for $4500, at the end of 25 years for $5955 or at the end of 15 years for $7035. Determine the price to guarantee the investor a yield of j2 = 9%.

Answer 1

Here is the excel formula you can use to arrive at the answer:

=MIN(PV(9%/2,2*20,-5500*6%/2,-4500),PV(9%/2,2*25,-5500*6%/2,-5955),PV(9%/2,2*15,-5500*6%/2,-7035),PV(9%/2,2*30,-5500*6%/2,-5500))

=3797.36318

Therefore, the price to guarantee the investor a yield of j2 = 9% is $3,797.36