What is a corporate bond? what are the pros and con's? What is callable Bond? what...

What is a corporate bond? what are the pros and con's?

What is callable Bond? what are the pros and con's?

Expert Solution

Corporate bond is a bond issued by a company to rasie capital.

Buyer of a corporate bond is a lender and seller of a corporate bond is a borrower.

Pros of Corporate bond

1) Less volatile as compared to stocks of the company.

2) The corporate bond market is liquid

Cons of Corporate bond

1) Riskier than the Government bond.

2) They fall in value if the interest rate rises.

Callable bond is a bond which gives the right to the issuer to redeem the bond before the maturity or we can say that it allows the borrower to pay its debt before the maturity date.

Pros of Callable bond

1) If the interest rate falls, the issuer can pay off the debt by exercising it's right.

2) The investor(lender) gets a higher coupon rate as it is providing a right to the borrower.

Cons of Callable bond

1) The borrower has to pay a higher coupon rate for this bond.

2) The investor will have to invest at a lower rate than what he was getting at this bond if the issuer exercises the rights.

jeff jeffy answered 2 years ago

Alex Smith, is considering an investment in a corporate bond, or a callable corporate bond. He...

Alex Smith, is considering an investment in a corporate bond, or a callable corporate bond. He has asked you to explain each and how they differ. Assume: Par=$1,000, Coupon Rate=4%, Market Rate=3%, Remaining Term=9yrs, Remaining Term to Call=4yrs, typical call premium applies • Provide a write up comparing and contrasting the different bond types • Under the assumption that Joe is very risk averse, make a recommendation, with support

Your friend, Jamie lynn, is considering an investment in a corporate bond, or a callable corporate...

Your friend, Jamie lynn, is considering an investment in a corporate bond, or a callable corporate bond. she has asked you to explain each and how they differ. Assume: Par=$1,000, Coupon Rate=5%, Market Rate=6%, Remaining Term=9yrs, Remaining Term to Call=4yrs, typical call premium applies • Provide a write up comparing and contrasting the different bond types • Use common models found in the text to help him understand how to evaluate potential returns from each • Under the assumption that...

Define a callable bond. How is a callable bond different from a non-callable bond? - Consider...

Define a callable bond. How is a callable bond different from a non-callable bond? - Consider a non-callable bond with an 8% coupon and with yield to maturity = 10%. If the bond’s yield to maturity remains constant, then in one year will the bond price be higher, lower, or unchanged? Why? - 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)...

A.Define a callable bond. How is a callable bond different from a non-callable bond? Consider a...

A.Define a callable bond. How is a callable bond different from a non-callable bond? Consider a non-callable bond with an 8% coupon and with yield to maturity = 10%. If the bond’s yield to maturity remains constant, then in one year will the bond price be higher, lower, or unchanged? Why? Problem 3 (continued) 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 3% callable and convertible corporate bond with a face value of $1,000 and 20 years...

A 3% callable and convertible corporate bond with a face value of $1,000 and 20 years remaining to maturity trades to yield 0.5%. Its conversion ratio is 40. The market value of bond is equal to 104% of the conversion value. The issuer just announced the bond would be called at 110 and simultaneously the market value of the underlying stock increased by 3%. Find the new market value of the bond following the announcement and express it in dollars...

a, This bond is callable. This means that

Issuer Symbol Callable Coupon _rate Maturity Moody Rating Price YieldMMM BRK3680632 Yes 7% 10/21/2030 Aa3 120 _____a, This bond is callable. This means thatMMM bondholders can convert bond to stocks when the bond is called.MMM company is expected to call back this bond when the market interest rate decreases.MMM is expected to call back this bond when MMM stock price increases.MMM is expected to call back this bond when MMM stock price decreases.b, The...

An 81/2 30-year US corporate bond is callable in 12 years. It is currently sold at...

An 81/2 30-year US corporate bond is callable in 12 years. It is currently sold at a price of $960. The call premium is 10 percent. The prevailing market interest rate at the call date is 8 percent. a. What is the yield to call to an investor who does not reinvest the call price at the prevailing interest rate at the call date? b. What is the yield to call to an investor who reinvests the call price at...

Describe, in at least 250 words, what bond it means for a bondto be Callable...

Describe, in at least 250 words, what bond it means for a bond to be Callable or Puttable. Why would someone call or put a bond?

What are the pro's and the con's of investing in Amazon?

You bought a $1,000 par GM callable bond in January 2020 that is callable in 2025...

You bought a $1,000 par GM callable bond in January 2020 that is callable in 2025 at par. It has a coupon rate of 3.2%/year. When is GM likely to call the bond? You bought a $1,000 par Southern Company bond on April 1. The bond pays a coupon rate of 4%/year semiannually on December 1 and June 1. How much accrued interest did you pay?

Question