Determine the current market prices of the following $1,000 bonds if the comparable rate is 10 percent and answer the following questions.
XY 5 1/4 percent (interest paid annually) for 20 years
AB 14 percent (interest paid annually) for 20 years

a. Which bond has a current yield that exceeds the
yield to maturity?
b. Which bond may you expect to be called? Why?
c. If CD, Inc. has a bond with a 5 1/4 percent coupon
and a maturity of 20 years but which was lower
rated, what would be its price relative to the XY,
Inc bond? Explain.

Question

Determine the current market prices of the following $1,000 bonds if the comparable rate is 10 percent and answer the following questions.​
XY 5 1/4 percent (interest paid annually) for 20 years
AB 14 percent (interest paid annually) for 20 years
​
a. Which bond has a current yield that exceeds the
yield to maturity?
b. Which bond may you expect to be called? Why?
c. If CD, Inc. has a bond with a 5 1/4 percent coupon
and a maturity of 20 years but which was lower
rated, what would be its price relative to the XY,
Inc bond? Explain.

Quizplus · Accepted Answer

The Answer of Determine the current market prices of the following $1,000 bonds if the comparable rate is 10 percent and answer the following questions.​
XY 5 1/4 percent (interest paid annually) for 20 years
AB 14 percent (interest paid annually) for 20 years
​
a. Which bond has a current yield that exceeds the
yield to maturity?
b. Which bond may you expect to be called? Why?
c. If CD, Inc. has a bond with a 5 1/4 percent coupon
and a maturity of 20 years but which was lower
rated, what would be its price relative to the XY,
Inc bond? Explain.

Determine the Current Market Prices of the Following $1,000 Bonds