On October 15, 2019 Tandy Motors issued $5 billion of "step-up" bonds having 25 years to maturity. The step-up
bonds, which have a par value of $1000, make semiannual coupon payments on April 15 and October 15. Although the initial coupon rate is 2%, on April 15, 2030 (after 20 semi-annual coupon payments) the coupon rate will be stepped-up to 5% until the bond matures on October 15, 2044. Assuming that the required yield to maturity for Tandy Motors bonds is currently 4.8%, determine
- How would I be able to find the price of their step up bonds as of 10/15/19?
- If the coupon payments from that step up bond were to be invested (semi-annually, compounded) at 3%, how would I be able to find the reinvested rate of return from buying and holding these bonds to maturity as of 10/15/2044?
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