14) Taussig Corp.\'s bonds currently sell for $1,150. They have a 55% annual cou

ID: 2615911 • Letter: 1

Question

14) Taussig Corp.'s bonds currently sell for $1,150. They have a 55% annual coupon rate and a 20-year maturity, but they can be called in 5 years at $1,028 Assume that no costs other than the call premium , with would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal rates expected should an investor expect to earn if he or she purchases these bonds? Explain. (5 points) to remain at current levels on into the future. Under these conditions, what rate of return

Explanation / Answer

Using financial calculator BA II Plus - Input details:

FV = Call price =

-$1,028.00

PV = Bond price =

$1,150.00

PMT = Coupon =

-$55.00

N = Year to call =

CPT > I/Y = Rate =

2.775421

Yield to call or Return Investors should expect to earn in % = Rate *100 =

2.775421%

Rounding to two decimal places will give us: 2.78%