Masters corp. issues two bonds with 20-year maturities. both bonds are callable at $1,050. the first bond is issued at a deep discount with a coupon rate of 4% and a price of $580 to yield 8.4%. the second bond is issued at par value with a coupon rate of 8.75%.

a. what is the yield to maturity of the par bond? (round your answer to 2 decimal places.) yield to maturity %

b. if you expect rates to fall substantially in the next two years, which bond would you prefer to hold? bond with a coupon rate 4% bond with a coupon rate 8.75%

Question

Business

Roselyn Skinner

12 November, 15:44

Masters corp. issues two bonds with 20-year maturities. both bonds are callable at $1,050. the first bond is issued at a deep discount with a coupon rate of 4% and a price of $580 to yield 8.4%. the second bond is issued at par value with a coupon rate of 8.75%.

a. what is the yield to maturity of the par bond? (round your answer to 2 decimal places.) yield to maturity %

b. if you expect rates to fall substantially in the next two years, which bond would you prefer to hold? bond with a coupon rate 4% bond with a coupon rate 8.75%

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Answers (1)

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Van Roberts · Answer 1

a. what is the yield to maturity of the par bond? (round your answer to 2 decimal places.) yield to maturity % 10%

b. if you expect rates to fall substantially in the next two years, which bond would you prefer to hold? bond with a coupon rate 4% bond with a coupon rate 8.75% Unsolvable