What is the trading price of the bond

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Venture Corp issued 7 year 5% bonds due 2024 at par. This bond pays interest on a semi-annual basis. However, right after Venture issued the bonds, the Company seriously missed its first earnings and at the same time, the interest rate environment changed. Now the market’s required return has increased to 10% (all else being equal). In this current environment, what is the trading price of the bond? Is this bond trading at a discount or premium?

Now suppose you find out that the Venture Corp bonds are callable in 3 years at 103% (or $1030).   Assuming the trading price you found above, what is the bond’s yield to call? Is the yield to call or yield to maturity higher? Why? (Hint: the yield to call is the yield you get if you hold the bond until the call date and redeem the call price)

Reference no: EM131536393

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