As an investor you are considering an investment in the

#3510
As an investor, you are considering an investment in the bonds of the Front Range Electric
Company. The bonds pay interest semiannually, will mature in eight years, and have a coupon
rate of 4.5% on a face value of $1,000. Currently, the bonds are selling for $900.a. If your
required return is 5.75% for bonds in this risk class, what is the highest price you would be
willing to pay? (Note: use the PV function.)b. What is the current yield of these bonds?c. What is
the yield to maturity on these bonds if you purchase them at the current price?d. If you hold the
bonds for one year, and interest rates do not change, what total rate of return will you earn?
Why is this different from the current yield and YTM?e. If the bonds can be called in three years
with a call premium of 4% of the face value, what is the yield to call on these bonds? (Note: use
the RATE function.)f. Now assume that the settlement date for your purchase would be 7/30/
2011, the maturity date is 7/30/2019, and the first call date is 7/30/ 2014. Using the PRICE and
YIELD functions recalculate your answers to parts a, c, and d.g. If market interest rates remain
unchanged, do you think it is likely that the bond will be called in three years? Why or why
not?h. Create a chart that shows the relationship of the bond's price to your required return. Use
a range of 0% to 15% in calculating the prices.View Solution:
As an investor you are considering an investment in the

ANSWER
http://paperinstant.com/downloads/as-an-investor-you-are-considering-an-investment-in-the/

1/1
Powered by TCPDF (www.tcpdf.org)