The Borrow and Build Inc. has an outstanding bond with the par value of $1,000, 10 years to maturity and annual coupon rate of 9%. The required rate of return on this particular class of bonds is 8%
a) what is the maximum price you are willing to pay for this bond?
b) what are the current (interest) yield and capital gain yield on this bond? what happens to yield-to-maturity current-yield and capital gain-yield when this bond approaches its maturity?
c) this bond has a clause that it may be recalled in 3 years for $1,1150. What is the yield to call on this bond today? interpret it. Explain why this bond may be recalled