A 20 year $100 par-value bond with 5% coupon rate with annual coupon payment is bought at a discount price of $80.
a. What is the yield?
b. If I can deposit the coupon payment into a bank account paying 4%
annually, what is my combined yield? That is, what is the annual yield
to go from $80 to the balance of the account plus the $100 redemption.
c. This bond is callable after 15 years (at par) and I could deposit the
redeemed amount in an account paying 4%, what is my annual yield
for this 20-year period.