A $1000 bond has semi-annual coupons at j₂= 10%.It is redeemable at par in n-years (n 5).The bond is callable in 5 years at par.The price of the bond to yield j₂ = 8%,assuming the bond is held to maturity,is $1172.92.Which of the following is the correct answer?

Question

A $1000 bond has semi-annual coupons at j₂= 10%.It is redeemable at par in n-years (n > 5).The bond is callable in 5 years at par.The price of the bond to yield j₂ = 8%,assuming the bond is held to maturity,is $1172.92.Which of the following is the correct answer?

Quizplus · Accepted Answer

If the bond is callable in 5 years at par and the investor pays $1172.92 for it, the return will be less than the yield to maturity of 8% if the bond is called in 5 years, because the investor will not have the opportunity to benefit from the above-par purchase price over the originally anticipated longer duration.

A $1000 Bond Has Semi-Annual Coupons at J2= 10

A $1000 Bond Has Semi-Annual Coupons at J₂= 10