Suppose You Have a 12 Percent, 20-Year Bond Traded at $850

question 64

Multiple Choice

Suppose you have a 12 percent, 20-year bond traded at $850. If it is callable in 5 years at $1,100, what is the bond's yield to call? Interest is paid semiannually.

• A) 8 percent
• B) 9.0 percent
• C) 18.0 percent
• D) 9.4 percent
• E) 16.5 percent

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Definitions:

Massage Numbers

Informal and potentially unethical practices of manipulating financial data to present more favorable results than the actual performance.

Negative Covenant

A clause in a loan or bond agreement that restricts certain activities by the borrower to protect the lender's interests.

Capital Expenditures

Capital expenditures are funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.

Cash Dividends

Payments made by a corporation to its shareholder members. It is the share of profits distributed in cash.