Question

(1 point) A company issues a 30-year $6000 bond, redeemable at 102 with bond interest at ji = 7%. The bond is callable at the end of 20 years for $4735, at the end of 25 years for $6235 or at the end of 15 years for $7280. Determine the price to guarantee the investor a yield of ji = 10%. Answer: $

Answer 1

IF ANY QUERY, FEEL FREE TO ASK THEM AND GET RESOLVED Solution Bond Price Formula PV(rate,year,-coupon payment,-face value) 1 Bond Price redeemed at maturity Formula $4,310.03 =PV(10%,30,-6000*7%,-6000*102%) 2 Bond Price called at 20 year Formula $4,279.52 =PV(10%,20,-6000*7%,-4735) 3 Bond Price called at 25 year Formula $4,387.82 =PV(10%,25,-6000*7%,-6235) 4 Bond Price called at 15 year Formula $4,937.33 =PV(10%,15,-6000*7%,-7280) Hence, bond price must be $4279.52 (lowest of all) to gurantee 10% yield.