4 points Sav Question 6 A $ 1 000 par value 600 bond with semiannual coupons mat

Question

4 points Sav Question 6 A $ 1 000 par value 600 bond with semiannual coupons matures at the end of 10 years. The bond is call ab $1050 atthe ends ofyears 4 through 6, at $1025 at the ends of years 7 through 9, and at $1000 at the en year 10. Find the maximum price that an investor can pay and still be certain ofa yield rateof.% conve semiannually Price if called in the window of ends of years 4 through 6: Price if called in the window of ends of years 7 through 9: C Price if called at maturity (end of year 10): C Maximum price that an investor can pay and still be certain of a yield rate of490 convertiblesemianl

Explanation / Answer

Price if called in the window of ends of years 4 through 6

= (Semi-annual interest payment x PVA2%,20) + (Call price x PV2%,20)

= ($1000 x 3% x 16.351433) + ($1050 x 0.672971)

= $1197

Price if called in the window of ends of years 7 through 9

= (Semi-annual interest payment x PVA2%,20) + (Call price x PV2%,20)

= ($1000 x 3% x 16.351433) + ($1025 x 0.672971)

= $1180

Price if called at maturity (end of year 10):

= (Semi-annual interest payment x PVA2%,20) + (Call price x PV2%,20)

= ($1000 x 3% x 16.351433) + ($1000 x 0.672971)

= $1164

Maximum price = $1164

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.