Thatcher Corporation’s bonds will mature in 10 years. The bonds have a facevalue of $1,000 and an 8% coupon rate, paid semiannually. The price of the bonds is $1,100. The bonds are callable in 5 years at a call price of $1,050. What is their yield to maturity? What is their yield to call?
The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,00 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year.
a. What will be the value of each of these bonds when the going rate of interest is (1) 5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on Bond S.
b. Why doew the longer term (15 year) bond fluctuate more when interest rates change than does the shorter term bond (1 year)?
Seven years ago, Goodwynn & Wolf Incorporated sold a 20 year bond issue with a 14% annual coupon rate and a 9% call premium. Today, G&W called the bonds. The bonds originally were sold at their face value of $1,000. Compute the realized rate of return for investors who purchased the bonds when they were issued and who surrender them today in exchange for the call price.
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