Consider a 5% callable bond with 20 years maturity and 8% yield which pays the face...

Consider a 5% callable bond with 20 years maturity and 8% yield which pays the face value plus 10% if it is redeemed before maturity. If after 10 years the bond is redeemed, find an upper bound for the yield at that time. Assume that coupon payments are made once per year.

Solutions

Expert Solution

Solution


Assume face Value=	$1,000
Coupon payment per year	$50	(1000*0.05)
Number of years	20
Yield	8%
Bond Price =Present Value of Future cash flows
Bond Price	$705.46	(Using PV function of excel with Rate=8%, Nper=20, Pmt=-50, FV=-1000)

Bond Price	$705.46
Coupon payment per year	$50
Number of years	10
Amount received at the time of redemotion	$1,100	(1000*1.1)
Yield	10.51%	(Using RATE function with Nper=10,Pmt=50, PV=-705.46, FV=1100)

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

8. Bond A has a yield to maturity 20% and trades at $100. This bond pays...

8. Bond A has a yield to maturity 20% and trades at $100. This bond pays semi-annual coupons. Face value is also $100 and time to maturity is 3 years. a. Calculate the duration of this bond. Note: Yield to maturity is not necessarily the same as effective yield (APR vs. EAR) b. Calculate the convexity of this bond c. If yields decrease by 30% (not p.p.), what is the impact on prices in percentage terms i. Using only duration...

Given: A $1000 face-value, 20%-coupon bond with 5 years remaining to maturity, and a yield to...

Given: A $1000 face-value, 20%-coupon bond with 5 years remaining to maturity, and a yield to maturity of 10% What is the duration? _____________________. What is the percent volatility? _________________________.

A bond with a face value of $1000 and maturity of exactly 20 years pays 10%...

A bond with a face value of $1000 and maturity of exactly 20 years pays 10% annual coupon. This bond is currently selling at an annual yield-to-maturity (YTM) of 12%. Answer the following questions for this bond. a. Calculate the current price of the bond by discounting all the cash flows of the bond using the timeline method. b. Calculate the modified duration of the bond without using any Excel built-in function. (calculate PV of each cash flow, find the...

-A 15-year maturity, 8% coupon bond is callable in 5 years at a call price of...

-A 15-year maturity, 8% coupon bond is callable in 5 years at a call price of $1,050. The bond currently sells at yield to maturity of 7% a- What is the yield to call ? b- What is the yield to call if the call price is only $1000 c- What is the yield to call if the call price is $1050, but the bond can be called in 2 years instead of 5 ?

A U.S. government bond with 5 years to maturity pays a coupon of 3.5%. The yield...

A U.S. government bond with 5 years to maturity pays a coupon of 3.5%. The yield to maturity is 2.8%. Use Excel or Python to produce a graph of the bond price as a function of different yields to maturity. Carla earns $100,000 per year now, and pays $20,000 per year on her fixed rate mortgage. Her income is subject to a COLA clause. If the risk-free rate of interest is 3%, and the expected inflation rate is 2% per...

A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in 5 years at a...

A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in 5 years at a call price of $1100. The bond currently sells at a yield to maturity (YTM) of 7% (3.5% per half-year). What is the yield to call? How does it relate to the YTM? Why?

A 20-year bond with a face value of $1,000 will mature in 8 years. The bond pays semi-annual coupons at 5% p.a

A 20-year bond with a face value of $1,000 will mature in 8 years. The bond pays semi-annual coupons at 5% p.a. compounding half-yearly. Mia wants to purchase the bond at a price which gives her a yield to maturity of 6% p.a. compounding half-yearly. Calculate the maximum price Mia should pay for the bond. (Round your answer to the nearest cent).

An 8%, 8-year bond pays annual coupons and has 5 years to maturity. If the market...

An 8%, 8-year bond pays annual coupons and has 5 years to maturity. If the market interest rate is 9%, calculate the value of the bond. Show the (condensed) time line and key steps of two methods. For the NS method, show the abbreviated equation/expression.

A callable bond has 15 years to maturity and can be called in 5 years. The...

A callable bond has 15 years to maturity and can be called in 5 years. The bond’s coupon rate is 12% with semi-annual coupon payments. The par value is $1000. If the bond is called, the call price will be $1100. The bond is currently selling for $985.35 What is the difference between its yield-to-call and yield-to-maturity?

B. A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in 5 years at...

B. A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in 5 years at a call price of $1100. The bond currently sells at a yield to maturity (YTM) of 7% (3.5% per half-year). What is the yield to call? How does it relate to the YTM? Why?

Subjects