The owner is interested in investing some retained earnings in corporate bonds. She is considering the following:
o Bond A has a 7% annual coupon, matures in 12 years, and has a $1,000 face value.
o Bond B has a 9% annual coupon, matures in 12 years, and has a $1,000 face value.
o Bond C has an 11% annual coupon, matures in 12 years, and has a $1,000 face value.
Each bond has a yield to maturity of 9%.
a. Before calculating the prices of the bonds, identify whether each bond is trading at a premium, at a discount, or at par.
b. Calculate the price of each of the three bonds.
c. Calculate the current yield for each of the three bonds.
Tag: Yield to Maturity and Yield to Call
Yield to Maturity and Yield to Call
The owner is interested in investing some retained earnings in corporate bonds. She is considering the following:
o Bond A has a 7% annual coupon, matures in 12 years, and has a $1,000 face value.
o Bond B has a 9% annual coupon, matures in 12 years, and has a $1,000 face value.
o Bond C has an 11% annual coupon, matures in 12 years, and has a $1,000 face value.
Each bond has a yield to maturity of 9%.
a. Before calculating the prices of the bonds, identify whether each bond is trading at a premium, at a discount, or at par.
b. Calculate the price of each of the three bonds.
c. Calculate the current yield for each of the three bonds.