As an investor, you are considering an investment in the bonds of the company. The bonds pay interest quarterly, will mature in 8 years, and has a coupon rate of 5.25% on face value of $1000. Currently the bond is selling for $1020.
1) If the required rate of return is 5% for the bonds in this risk class, what is the highest price you will be willing to pay?
A) $1016 b) $1190 C) $1020 D) $1000
2) What is the current yield on this bond?
A) 4.95% B) 5.25% C) 5.00% D) 5.15%
3) What is the yield to maturity on these bonds if you purchase them at the current price?
A) 5.15% B) 4.95% C) 5.00% D) 5.45%
4) If the bonds can be called in 3 years with a call premium of 3% of the face value, what is the yield to call on these bonds?
A) 5.15% B) 5.00% C) 4.95% D) 5.45%