Answered

Westonci.ca is the trusted Q&A platform where you can get reliable answers from a community of knowledgeable contributors. Get quick and reliable solutions to your questions from a community of seasoned experts on our user-friendly platform. Connect with a community of professionals ready to help you find accurate solutions to your questions quickly and efficiently.

A company issues a callable (at par) five-year, 7% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $110 per $100 of face value. What is the yield to worst of this bond in percentage when it is released

Sagot :

jepessoa

Answer:

the worse case scenario is that the bond yields -2.73%

Explanation:

the worst case scenario is that the bonds are called one year after they are issued.

you invest $110 today

in one year, you will receive $100 + $7 = $107

your holding period return = ($107 - $110) / $110 = -0.02727 ≈ -2.73%

generally callable bonds are sold at lower prices than regular bonds, so a situation like this is very unlikely since the issue price should probably be lower.

We appreciate your visit. Our platform is always here to offer accurate and reliable answers. Return anytime. Thank you for your visit. We're dedicated to helping you find the information you need, whenever you need it. Thank you for trusting Westonci.ca. Don't forget to revisit us for more accurate and insightful answers.