A 10 Percent Coupon Bond Has 15 Years to Maturity

question 89

Multiple Choice

A 10 percent coupon bond has 15 years to maturity and could be called in two years. If the bond is called, investors will earn 4 percent. The call premium is one year of coupon payments. If coupon payments are made annually and par value is $1,000, what is the bond's yield to maturity?

• A) 6.19 percent
• B) 6.82 percent
• C) 7.65 percent
• D) 7.98 percent

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Definitions:

Excise Tax

A tax levied on the sale of specific goods and services, such as tobacco, alcohol, and fuel.

Levied

Imposed or collected (usually a tax, fine, or other charge) by authority or force.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, indicating the sensitivity of demand to price changes.

Luxury Tax

A tax imposed on expensive goods and services considered to be non-essential or luxurious.