January 1, 2012, and you are considering the purchaseof an outstanding bond that was issu
January 1, 2012, and you are considering the purchaseof an outstanding bond that was issued on January 1, 2008. It has a7 percent annual coupon and had a 30-year original maturity. (Itmatures on December 31, 2037.) There were 8 years of callprotection (until December 31, 2015), after which time it can becalled at 109.5 percent of par, or $1,095. Interest rates haveincreased since the bond was issued, and it is now selling at 87percent of par, or $870. If you bought this bond, what rate ofreturn would you probably earn, assuming you hold the bonds untilthey either mature or are called?
Can you expalin this in steps please