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Question
junk corp.'s highyield bond has the following features:
principal $1,000
coupon 10%
maturity 5 years
special features: company may extend the life
of the bond to 10 years
a. if interest rates are currently 12 percent on comparable high-yield securities and are not expected to change, what is the price of this bond?
b. if interest rates are currently 9 percent on comparable highyield securities and are not expected to change, what is the price of this bond?
c. if interest rates are currently 9 percent on comparable highyield securities but the investor has no forecast as to future rates, what is the possible range of prices for this bond?
Answer
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