Alpha Bonds have a coupon rate of 7% with semiannual coupon payments, a face value of $1,000, and 6 years to go until maturity. Beta Bonds have a coupon rate of 10% with semiannual interest payments, a face value of $1,000, and 12 years to go until maturity. However, they can be called in 5 years for a call premium of $1,040. Gamma Bonds have a coupon rate of 12% with semiannual interest payments, a face value of $1,000,and 20 years to go until maturity. However, they can be called in 8 years for a call premium of $1,020.
1. If the Alpha bonds have a YTM of 8%, then how much are they worth?
a) $928
b) $953
c) $984
d) $1,023
2. If the Beta bonds have a price of $1,070, then what is the relevant yield (which yield matters, the yield to maturity or the yield to call)?
a) 8.5%
b) 8.75%
c) 8.9%
d) 9%
3. If the Alpha bonds have a current yield of 9%, then how much are they worth?
a) $778
b) $847
c) $963
d) $1,090