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In: Finance

1. You are considering the bonds of Epsilon, Inc., a printer manufacturer. The bonds make semiannual...

1. You are considering the bonds of Epsilon, Inc., a printer manufacturer. The bonds make semiannual payments and have five years to maturity, a coupon rate of 7%, and a redemption value of $1,000.

A. Determine the intrinsic value of these bonds assuming that your required rate of return is 10% (use the PV function.) B. Also determine the current yield and the yield to call (use the RATE function) if the bonds can be called in four years with a call premium of 2%.

(This needs to be done in Excel)

Solutions

Expert Solution

A)

Hence, Bond intrinsic value is $884.17

B)

Current yield:

= $70/$884.17

= 7.92%

Hence, Yield to call is 11.08% (5.54%*2)

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jeff jeffy answered 9 months ago
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