In: Finance
Nine years ago the Templeton Company issued 25-year bonds with
an 12% annual coupon rate at...
Nine years ago the Templeton Company issued 25-year bonds with
an 12% annual coupon rate at their $1,000 par value. The bonds had
an 8% call premium, with 5 years of call protection. Today
Templeton called the bonds.
- Compute the realized rate of return for an investor who
purchased the bonds when they were issued and held them until they
were called. Round your answer to two decimal places.
%
- Why the investor should or should not be happy that Templeton
called them.
- Since the bonds have been called, interest rates must have
risen sufficiently such that the YTC is greater than the YTM. If
investors wish to reinvest their interest receipts, they can now do
so at higher interest rates.
- Since the bonds have been called, interest rates must have
risen sufficiently such that the YTC is greater than the YTM. If
investors wish to reinvest their interest receipts, they must do so
at lower interest rates.
- Since the bonds have been called, investors will receive a call
premium and can declare a capital gain on their tax returns.
- Since the bonds have been called, investors will no longer need
to consider reinvestment rate risk.
- Since the bonds have been called, interest rates must have
fallen sufficiently such that the YTC is less than the YTM. If
investors wish to reinvest their interest receipts, they must do so
at lower interest rates.