anonymous
2008-11-24 08:59:15 UTC
Alpha Inc has a $1000 par value bond that was issued 10yrs ago for a 30yr term. Interest rates were very high at that time and the bonds coupon rate is 22%. the relevant bond market interest rate is now 10%. All of alpha's bonds have a call feature. It allows the company to pay off the bond anytime after the 1st 15yrs, but requires that bondholders be compensated with an extra years interest at the coupon rate if such a payoff is exercised. What is the bonds market price assuming investor expect it will be called asap.
i have the formula for this problem but have no clue where the #'s go or how to figure it out...
heres the formula
bo=c/2[1-(1+y+c)-2d/2/ytc/2]+cp/(1+ytc/2)2d
now who ever figures this out is a genius..and i will give u as many thumbs up on yahoo answers as i can and crown u "The Finance God"
good luck