Question

A company issues a 35-year $8000 bond, redeemable at 103 with bond interest at j12 = 6%. The bond is callable at the end of 25 years for $6790, at the end of 30 years for $8250 or at the end of 20 years for $9285. Determine the price to guarantee the investor a yield of j12 = 11%.

Answer 1

The following is the excel formula to solve the given problem:

=MIN(PV(11%/12,12*25,-8000*6%/12,-6790),PV(11%/12,12*30,-8000*6%/12,-8250),PV(11%/12,12*20,-8000*6%/12,-9285),PV(11%/12,12*35,-8000*6%/12,-8000))

=4442.38636

So, the price to guarantee the investor a yield of j12 = 11% is $4,442.39.