What will the price of this bond be

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Reference no: EM13268282

A $1,000 bond has a coupon rate of 10 percent and matures after 8 years. Interest rates are currently 7%.

a) What will the price of this bond be if the interest is paid annually?
b) What will the price be if investors expect that the bond will be called with no call pennalty after two years?
c) What will the price be if the investors expect that the bond will be called after two years and there will be a call penalty of one year's interest?
d) Why are your answers different for questions a, b and c?

Reference no: EM13268282

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