A $1000 Bond Is Redeemable at Par in 10 Years

question 14

Multiple Choice

A $1000 bond is redeemable at par in 10 years and is callable at par after 7 years.The price of the bond to yield j₂ = 10% is
• $982.37 assuming the bond is held to maturity
• $975.48 assuming the bond is called after 7 years
Which of the following statements is true?

• A)If an investor pays $975.48 and the bond is held to maturity,the yield will equal j₂ = 10%
• B)If an investor pays $975.48 and the bond is called immediately after 7 years,the yield will exceed j₂ = 10%
• C)If an investor pays $982.37 and the bond is called after 7 years,the yield will exceed j₂ = 10%
• D)If an investor pays $982.37 and the bond is held to maturity,the yield will equal j₂ = 10%

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