A $100 bond paying coupons at j₂ = 8% is redeemable at par in 15 years,and callable at 110 from years 5 to 10.What is the maximum purchase price an investor would be willing to pay which would guarantee a yield of j₂ = 9%?

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To guarantee a yield of j₂ = 9%, the investor should consider the worst-case scenario, which is the bond being called at the earliest possible time (year 5) at the callable price of 110. Calculating the present value of the bond's cash flows (coupons and redemption value) at the required yield of 9% results in a maximum purchase price of $91.86.

A $100 Bond Paying Coupons at J2 = 8% Is

A $100 Bond Paying Coupons at J₂ = 8% Is