Determine the yield to call as of december 1

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In 1994 AT&T issued 8 5⁄8 percent debentures that will mature on December 1, 2034.

a. If an investor purchased one of these bonds ($1,000 denomination) on December 1, 2004, for $1,050, determine the yield-to-maturity. Explain why an investor would be willing to pay $1,050 on December 1, 2004, for one of these bonds when he or she is going to receive only $1,000 when the bond matures in 2034.

b. The AT&T 8 5/8 percent debentures are callable by the company on December 1, 2009, at $1,044.50. Determine the yield to call as of December 1, 2009, assuming that AT&T calls the bonds on that date.

Reference no: EM131338549

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