ch10ans - Chapter 10: 3. The bond callable at 105 should...

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Chapter 10: 3. The bond callable at 105 should sell at a lower price because the call provision is more valuable to the firm. Therefore, its yield to maturity should be higher. 4. Lower. Interest rates have fallen since the bond was issued. Thus, the bond is selling at a premium and the price will decrease (toward par value) as the bond approaches maturity. 8. If the yield curve is upward sloping, you cannot conclude that investors expect short-term interest rates to rise because the rising slope could either be due to expectations of future increases in rates or due to a liquidity premium. 9. a) The bond pays $50 every 6 months Current price = $1052.42 Assuming that market interest rates remain at 4% per half year: the price 6 months from now = $1044.52 b) Rate of return = [1044.52 - 1052.42 + 50]/1052.42 = .04 or 4% per 6 months 10. a. Use the following inputs: n = 40, FV = 1000, PV = –950, PMT = 40. You will find that the yield to maturity on a semi-annual basis is 4.26%. This implies a bond equivalent yield to maturity of: (4.26%
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ch10ans - Chapter 10: 3. The bond callable at 105 should...

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