Today is January 1, 2018, the Manny Corporation is going through a restructuring of their production process and they decide to borrow more to finance this change in their process. The Corporation has just issued a 20 year straight bond, Bond M, that has $1,000 par value and 12% coupon rate. The bond makes semi-annual coupon payments and issued at par.
Suppose the company wants to issue another 20 year straight bond right now. Given their recently issued bonds, Bond M, state the yield to maturity and the coupon rate of these new bonds should have. Briefly explain why.
Suppose the company is thinking about making the new bonds callable. Given this information, state whether the yield to maturity and the coupon rate of these new bonds should be higher or lower than what you stated in part (a) of this question. Briefly explain why.
Assume one and a half years have passed. So today is July 1, 2019 and the yield to maturity on Bond M has changed to 13%. Calculate the price of bond M on July 1, 2019.
Assume today is July 1, 2029 and Bond M is selling for $1054.32 in the market right now, calculate the yield to maturity of this bond.
Suppose the yield to maturity on Bond M stays at the level you calculated in part (d) of this question and today is July 1, 2030. Calculate the price of Bond M on July 1, 2030.
If you bought Bond M on July 1, 2029 at the price given in part (d) of this question and sold it on July 1, 2030 at the price you calculated in part (e) of this question, calculate the current yield and capital gains yield for this bond investment.