Predicting Bond Values (Use the chapter appendix to answer this problem.)
Bulldog Bank has just purchased bonds for $106 million that have a par value of $100 million, three years remaining to maturity, and an annual coupon rate of 14 percent. It expects the required rate of return on these bonds to be 12 percent one year from now.
a. At what price could Bulldog Bank sell these bonds one year from now?
b. What is the expected annualized yield on the bonds over the next year, assuming they are to be sold in one year?
Predicting Bond Values (Use the chapter appendix to answer this problem.)