Considering the purchase of an outstanding bond

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It is now January 1, 2012, and you are considering the purchase of an outstanding bond that was issued on January 1, 2008. It has a 7 percent annual coupon and had a 30-year original maturity. (It matures on December 31, 2037.) There were 8 years of call protection (until December 31, 2015), after which time it can be called at 109.5 percent of par, or $1,095. Interest rates have increased since the bond was issued, and it is now selling at 87 percent of par, or $870. If you bought this bond, what rate of return would you probably earn, assuming you hold the bonds until they either mature or are called?

Reference no: EM131055648

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