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Again, Inc. bonds have a par value of $1,000, a 25 year maturity, and an annual coupon rate of 16.0% with annual coupon payments. The bonds are currently selling for $873. The bonds may be called in 4 years for 116.0% of par. What quoted annual rate of return do you expect to earn if you buy the bonds and company calls them when possible

Respuesta :

Answer: 24.10%

Explanation:

The quoted annual rate of return that will be expected to be earned if one buys the bonds and company calls them when possible will be calculated thus:

Call price = 1160

Coupon rate = 16%

Number of compounding period per year = 1

Interest per period = 1000 × 16% = 160

Bond price = 873

Number of years to sell = 4

NPER = 4

Quoted annual rate of return will be:

= Rate(NPER, PMT, -PV, FV)

= Rate(4160, -873, 1160)

= 24.10%

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