An investor is considering buying a bond named CCC. Bond CCC pays 10% semi-annual coupon,...
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An investor is considering buying a bond named CCC. Bond CCC pays 10% semi-annual coupon, it has 15 years to maturity and the current price of this bond is $1,100. This bond is callable at the end of year 4 (the first and only call date). The call price of the bond is $1,050. What is the RTC for this bond? Suppose our investors investment horizon is only 8years (a period extending beyond the first call date, but shorter than the maturity of the bond). Also assume that this investor believes that she can invest all proceeds @ 6%.(a)Compute the total return of the bond on the assumption that the bond is called in 4 years.(b)Compute the total return of the bond on the assumption that the bond is not called and lives until maturity.
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