Masters Corp. issues two bonds with 18-year maturities. Both bonds are callable
ID: 2797821 • Letter: M
Question
Masters Corp. issues two bonds with 18-year maturities. Both bonds are callable at $1,050. The first bond is issued at a deep discount with a coupon rate of 4% and a price of $640 to yield 8.0%. The second bond is issued at par value with a coupon rate of 9.35%.
Bond with a coupon rate 4%
or
Masters Corp. issues two bonds with 18-year maturities. Both bonds are callable at $1,050. The first bond is issued at a deep discount with a coupon rate of 4% and a price of $640 to yield 8.0%. The second bond is issued at par value with a coupon rate of 9.35%.
Explanation / Answer
a yield to maturity of par bond = 9.35%
Bond with a coupon rate 9.35% .........since the bond would be less sensitive to price change and hence less lkey to be called