A 9% Semi-Annual RXP Callable Bond Is Selling for $1,090

question 58

Essay

A 9% semi-annual RXP callable bond is selling for $1,090 and has 15 years to maturity. The bond has five years of call protection and is callable at 105% of par value. What is the yield to maturity on the bond? What is the bond's yield to first call (YTFC)? What measure should an investor use to represent the interest rate risk of the RXP bond?

---

Definitions:

Marginal Tax Rate

Refers to the rate at which the next dollar of taxable income is taxed.

Tax Cuts

Reductions in the amount of taxes that individuals or corporations must pay to the government.

Proportional

Proportional describes a relationship or ratio that maintains the same relative size or aspect between items or variables.

Regressive

Refers to a tax system in which the tax rate decreases as the taxable amount increases, often placing a heavier burden on low-income earners.