Junk Corp'S High-Yield Bond Has the Following Features

question 1

Essay

Junk Corp.'s high-yield bond has the following features:
      Principal      $1,000
      Coupon             10%
      Maturity            5 years
      Special features: Company may extend the life of the bond to 10 years

a. If interest rates are currently 12 percent on comparable high-yield securities and are not expected to change, what is the price of this bond?

b. If interest rates are currently 9 percent on comparable high-yield securities and are not expected to change, what is the price of this bond?

c. If interest rates are currently 9 percent on comparable high-yield securities but the investor has no forecast as to future rates, what is the possible range of prices for this bond?

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Definitions:

Value Creation

The process through which businesses generate additional worth for their stakeholders, including customers, shareholders, and employees.

Six Capitals

A framework that identifies six types of capital organizations use to create value: financial, manufactured, intellectual, human, social and relationship, and natural.

Eco-Intensity Measures

Quantitative assessments that evaluate the environmental impact of a company's activities in relation to its economic value or output.

Output

The quantity of goods or services produced in a given time period by a firm or industry.