Reference no: EM131305116
Use the following information for questions 1-5. Alpha Bonds have a coupon rate of 7% with semiannual coupon payments, a face value of $1,000, and 6 years to go until maturity. Beta Bonds have a coupon rate of 10% with semiannual interest payments, a face value of $1,000, and 12 years to go until maturity. However, they can be called in 5 years for a call premium of $1,040. Gamma Bonds have a coupon rate of 12% with semiannual interest payments, a face value of $1,000,and 20 years to go until maturity. However, they can be called in 8 years for a call premium of $1,020.
1. If the Alpha bonds have a YTM of 8%, then how much are they worth?
a) $928 b) $953 c) $984 d) $1,023
2. If the Gamma Bonds have a price of $950, then what is the relevant yield?
a) 6.3% b) 8.5% c) 9.7% d) 12.7%
3. If the Beta bonds have a price of $1,070, then what is the relevant yield?
a) 8.5% b) 8.75% c) 8.9% d) 9%
4. If the Alpha bonds have a current yield of 9%, then how much are they worth?
a) $778 b) $847 c) $963 d) $1,090
5. If the Gamma bonds have a yield to call of 10%, then how much are they worth?
a) $952 b) $1,076 c) $1,118 d) $1,233
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