Question

# A. You own a bond with the following features:               Face value of \$1000,               Coupon...

A.

You own a bond with the following features:

Face value of \$1000,

Coupon rate of 5% (annual)

11 years to maturity.

The bond is callable after 6 years with the call price of \$1,056.

If the market interest rate is 4.71% in 6 years when the bond can be called, if the firm calls the bond, how much will it save or lose by calling the bond?

If there would be a loss, state your answer as a negative (e.g., -37.51)

B.

What is the price of a bond with the following features?

• Face Value = \$1,000
• Coupon Rate = 3% (stated as an ANNUAL rate)
• Semiannual coupon payments
• Maturity = 8 years
• YTM = 4.37% (Stated as an APR)

bond price as 6 th year ending

reaming years to maturity=11-6=5 years

bond price on 6 th year=1012.66

calling price is 1056

loss=price on calling date- call price

=1012.66-1056

= -43.34

b) bond price =\$908.34

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