Junk Corp.'s high?yield bond has the following features:
Special features: Company may extend the life

of the bond to 10 years
a. If interest rates are currently 12 percent on comparable high-yield securities and are not expected to change, what is the price of this bond?
b. If interest rates are currently 9 percent on comparable high?yield securities and are not expected to change, what is the price of this bond?
c. If interest rates are currently 9 percent on comparable high?yield securities but the investor has no forecast as to future rates, what is the possible range of prices for this bond?

Question

Junk Corp.'s high?yield bond has the following features:
Special features: Company may extend the life
  
of the bond to 10 years 
a. If interest rates are currently 12 percent on comparable high-yield securities and are not expected to change, what is the price of this bond?
b. If interest rates are currently 9 percent on comparable high?yield securities and are not expected to change, what is the price of this bond?
c. If interest rates are currently 9 percent on comparable high?yield securities but the investor has no forecast as to future rates, what is the possible range of prices for this bond?

Quizplus · Accepted Answer

The Answer of Junk Corp.'s high?yield bond has the following features:
Special features: Company may extend the life
  
of the bond to 10 years 
a. If interest rates are currently 12 percent on comparable high-yield securities and are not expected to change, what is the price of this bond?
b. If interest rates are currently 9 percent on comparable high?yield securities and are not expected to change, what is the price of this bond?
c. If interest rates are currently 9 percent on comparable high?yield securities but the investor has no forecast as to future rates, what is the possible range of prices for this bond?

Junk Corp.'s High?yield Bond Has the Following Features