Earned on comparable securities

Assignment Help Financial Management

Reference no: EM131077838

In the section on the yield to call, a bond pays annual interest of $80 and matures after ten years. The bond is valued at $1,147 if the comparable rate is 6 percent and the bond is held to maturity. If, however, an investor expects the bond to be called for $1,050 after five years, the value of the bond would be $1,122. Investor A expects the bond to be called and investor B expects the bond not to be called. Investor A sells the bond to B for $1,122. What is the annual return earned by B if the bond is not called? Why is this yield greater than the 6 percent earned on comparable securities?

Reference no: EM131077838

Questions Cloud

European-style options on foreign currencies trade : European-style options on foreign currencies trade at the Philadelphia Exchange. A call option on sterling with an exercise price of 0.925 £/$ and a time to expiration of 3 months has a price of 0.0125 £/$. Is there an arbitrage opportunity? If there..

Bank pays quoted annual interest rate : A bank pays a quoted annual (simple) interest rate of 8 percent. However, it pays interest (compounds) daily using a 365-day year. What is the effective annual rate of return?

Effective in creating and monitoring an operating budget : Discuss which financial management practices are most effective in creating and monitoring an operating budget.

Evaluating capital budgeting project : Conventional corporation is evaluating a capital budgeting project that will generate $600,000 per year for the next 10 years. The project costs $3.6 million and conventional's required rate of return is 11 percent. Should the project be purchased?

Earned on comparable securities : In the section on the yield to call, a bond pays annual interest of $80 and matures after ten years. The bond is valued at $1,147 if the comparable rate is 6 percent and the bond is held to maturity. What is the annual return earned by B if the bond ..

What is the rate of return on this security : The preferred stock of AKA Enterprises pays an annual dividend of $8.50 and sells for $55.74 a share. What is the rate of return on this security?

Yield on the bond is per annum with continuous compounding : Which of the following is closest to the duration of a 2-year bond that pays a coupon of 8% per annum semiannually? The yield on the bond is 10% per annum with continuous compounding.

How do marketers ensure customers can find offerings : How do marketers ensure customers can find offerings? Why can't the term marketing be used to refer to advertising activities performed by a marketer?

Calculate the vibrational and rotational zero : The force constant for the D2 molecule is 577 N m^-1. Calculate the vibrational and rotational zero point energy for this molecule. If this amount of energy will be converted to translational energy, how fast would this molecule be moving?

User Account

All Pages