25. Cochran\'s Furniture Outlet is issuing 25-year, 9 percent callable bonds. Th

Question

25. Cochran's Furniture Outlet is issuing 25-year, 9 percent callable bonds. These bonds are callable in 4 years with a call premium of $45. The bonds are being issued at par and pay interest semi-annually. What is the yield to call?

A. 9.94 percent

B. 10.72 percent

C. 11.00 percent

D. 11.47 percent

E. 12.08 percent

28. A 6 percent, semiannual coupon bond has a yield to maturity of 7.4 percent and a Macaulay duration of 5.7. The bond has a modified duration of _____ and will have a _____ percentage increase in price in response to a 25 basis point decrease in the yield to maturity.

A. 5.4829; 1.35

B. 5.4966; 1.32

C. 5.4966; 1.37

D. 5.3073; 1.33

E. 5.3073; 1.38

Explanation / Answer

25. The yield to call is 9.94 percent. 28. The bond has a modified duration of 5.4966 and will have a 1.37 percentage increase in price in response to a 25 basis point in decrease in the yield to maturity.

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