It is now January 1, 2019, and Morgan Bush is considering the purchase of an outstanding bond that was issued on January 1, 2013. The bond has a 20-year original maturity and an 8 percent annual coupon (paid semiannually). The bond has call protection for 10 years, after which the bond can be called for 104 percent of par (or $1040). Interest rates have increased since the bond was issued, so the bond is now selling at $980. Which of the following statements is most CORRECT? a. The yield to maturity is 8.24%. If rates on new bonds of this type decrease by 2 percent four years from now, the bond will probably be called. b. The yield to call is 9.46 percent and the yield to maturity of 8.24 percent. SInce the YTC is greater than the YTM, the bond will probably not be called c. The yield to call is only 4.73 percent, so if rates do not change in the next 4 years, the bond will probably not be called. d. The yield to maturity is 4.12 percent, so if rates stay the same for the next 4 years, the bonds will probably be called once the call protection expires. e. None of the above
It is now January 1, 2019, and Morgan Bush is considering the purchase of an outstanding bond that was issued on January 1, 2013. The bond has a 20-year original maturity and an 8 percent annual coupon (paid semiannually). The bond has call protection for 10 years, after which the bond can be called for 104 percent of par (or $1040). Interest rates have increased since the bond was issued, so the bond is now selling at $980. Which of the following statements is most CORRECT?
a. The yield to maturity is 8.24%. If rates on new bonds of this type decrease by 2 percent four years from now, the bond will probably be called.
b. The yield to call is 9.46 percent and the yield to maturity of 8.24 percent. SInce the YTC is greater than the YTM, the bond will probably not be called
c. The yield to call is only 4.73 percent, so if rates do not change in the next 4 years, the bond will probably not be called.
d. The yield to maturity is 4.12 percent, so if rates stay the same for the next 4 years, the bonds will probably be called once the call protection expires.
e. None of the above
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