Question

(1 point) A company issues a 30-year $5500 bond, redeemable at 100 with bond interest at j12 = 6%. The bond is callable at the end of 20 years for $4085, at the end of 25 years for $5640 or at the end of 15 years for $6790. Determine the price to guarantee the investor a yield of j12 = 10%. Answer: $

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 $3,436.11 =PV(10%/12,30*12,-5500*6%/12,-6000*100%) 2 Bond Price called at 20 year Formula $3,407.12 =PV(10%/12,20*12,-5500*6%/12,-4085) 3 Bond Price called at 25 year Formula $3,494.08 =PV(10%/12,25*12,-5500*6%/12,-5640) 4 Bond Price called at 15 year Formula $4,083.58 =PV(10%/12,15*12,-5500*6%/12,-6790) Hence, bond price must be $3,407.12 or say $3,407 (lowest of all) to gurantee 10% yield.