Question

Seven years ago the Sheraton Company issued 20-year bonds with a 12% annual coupon rate at...

Seven years ago the Sheraton Company issued 20-year bonds with a 12% annual coupon rate at their $1,000 par value. The bonds had an 5% call premium. Today (8 years since the bonds were issued), the bonds were called. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Would the investor be happy that the bonds were called early? Why or why not?

PLEASE SHOW WORK, EXPLANATION AND EQUATIONS

Homework Answers

Answer #1

There is a typo in the question (First it says seven years ago the bonds were issued and later it says 8 years since the bonds were issued). Assuming the first to be correct i.e., seven years ago the bonds were issued

This cannot be solved by equations. Either one has to use Excel or financial calculator

Using financial calculator
N=7 (Bonds have been called seven years since their issue)
PMT=12%*1000 (Coupon rate*Par)
PV=-1000 (Bonds were issued at par)
FV=1000*(1+5%) (Bonds were called at 5% call premium)
CPT I/Y=12.4882%

Realised return is 12.4882%

The investors will not be happy as they would now have to invest at lower prevailing rates

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Seven years ago the Templeton Company issued 28-year bonds with an 11% annual coupon rate at...
Seven years ago the Templeton Company issued 28-year bonds with an 11% annual coupon rate at their $1,000 par value. The bonds had a 5% 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.
Seven years ago the Templeton Company issued 27-year bonds with an 12% annual coupon rate at...
Seven years ago the Templeton Company issued 27-year bonds with an 12% annual coupon rate at their $1,000 par value. The bonds had an 7% 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...
eBook Seven years ago the Templeton Company issued 19-year bonds with an 11% annual coupon rate...
eBook Seven years ago the Templeton Company issued 19-year bonds with an 11% annual coupon rate at their $1,000 par value. The bonds had a 6% 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 should or should not the investor be happy...
Nine years ago the Templeton Company issued 19-year bonds with an 11% annual coupon rate at...
Nine years ago the Templeton Company issued 19-year bonds with an 11% annual coupon rate at their $1,000 par value. The bonds had an 9% 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.
Six years ago the Templeton Company issued 21-year bonds with a 14% annual coupon rate at...
Six years ago the Templeton Company issued 21-year bonds with a 14% annual coupon rate at their $1,000 par value. The bonds had a 9% 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. %
Ten years ago the Templeton Company issued 20-year bonds with a 10% annual coupon rate at...
Ten years ago the Templeton Company issued 20-year bonds with a 10% annual coupon rate at their $1,000 par value. The bonds had a 9% 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 should or should not the investor be happy that...
Ten years ago the Templeton Company issued 16-year bonds with a 10% annual coupon rate at...
Ten years ago the Templeton Company issued 16-year bonds with a 10% annual coupon rate at their $1,000 par value. The bonds had a 9% 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 should or should not the investor be happy that...
Nine years ago the Templeton Company issued 17-year bonds with an 12% annual coupon rate at...
Nine years ago the Templeton Company issued 17-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. A. 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. % B. Why the investor should or should not be...
Nine years ago the Templeton Company issued 17-year bonds with an 12% annual coupon rate at...
Nine years ago the Templeton Company issued 17-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. A. 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. % B. Why the investor should or should not be...
Ten years ago the Templeton Company issued 29-year bonds with an 10% annual coupon rate at...
Ten years ago the Templeton Company issued 29-year bonds with an 10% annual coupon rate at their $1,000 par value. The bonds had an 9% 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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT
Active Questions
  • How would you decide between magnesium chloride hexahydrate and zinc chloride if they are both unknown...
    asked 3 minutes ago
  • Which of the following are true about the Grameen group lending model? Select all that apply....
    asked 4 minutes ago
  • Click to watch the Tell Me More Learning Objective 5 video and then answer the questions...
    asked 4 minutes ago
  • Please give an example of the difference between a Income statement And Balance sheet
    asked 4 minutes ago
  • 9. Children (approximately 11 years old) with cochlear implants (CI) and children with typical hearing (TH)...
    asked 3 weeks ago
  • The following selected account balances appeared on the financial statements of the Franklin Company. Use these...
    asked 7 minutes ago
  • 39. Carter Garcia is studying towards an online BS in Finance degree from George Washington University...
    asked 7 minutes ago
  • ___33. In the evolution of the vertebrates, the osteocytes are important in the formation of the:...
    asked 8 minutes ago
  • Flexible Budget for Selling and Administrative Expenses for a Service Company Cloud Productivity Inc. uses flexible...
    asked 8 minutes ago
  • Which of the following statements is/are incorrect? 1) A security's beta measures its market risk. 2)...
    asked 8 minutes ago
  • Describe the difference between acoustic impedance, specific acoustic impedance and characteristic acoustic impedance.
    asked 7 hours ago
  • Coyote Ugly LLC pays $100,000 to Roadrunner Development Company to acquire a 10-year lease with an...
    asked 13 minutes ago