Yield-to-maturity approach to bond pricing

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On date 0 HIJK issued callable bonds with a 10-period call-protect horizon, a coupon rate of 5% per period, and an original issuance maturity of 20 periods. It is now date 17 and the date 17 coupon payment has just been made. The yield-to-maturity on these bonds suddenly falls to 1% per period. The bond indenture specifies that the bonds are callable only on coupon payment dates that are beyond the call-protect horizon and only if the regularly scheduled coupon payment has not already been made on that coupon payment date. The bond indenture also specifies that the call premium would be $50 at date 11 and would decay by $5 per period thereafter through date 19 when it would be $10. Assume that the yield-to-maturity approach to bond pricing is appropriate. What is the intrinsic value of the bond right now?

Reference no: EM132395398

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