Define method of averages and then linear interpolation

Reference no: EM131773661

Question: A $1,000 callable bond pays interest at c (2) = 8% and matures at 105 in 20 years. It may be called at 110 at the end of year 5, or at 107.5 at the end of year 15.

(a) Determine the price of the bond to yield at least i (2) = 7%.

(b) Estimate, using first the method of averages and then linear interpolation, the yield rate earned by the buyer if the bond is held to maturity.

Reference no: EM131773661

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