In Year 1, BCC issued percent debentures that will mature on December 1, Year 36.
a. If an investor purchased one of these bonds ($1,000 denomination) on December 1, Year 7, for $1,040, determine the yield-to-maturity. Why investors would be willing to pay $1,040 on December 1, Year 7, for one of these bonds when they are going to receive only $1,000 when the bond matures in Year 36?
b. An investor will purchase this bond if its promised yield to maturity is (GREATER THAN OR EQUAL? EQUAL? LESS THAN OR EQUAL?) to the investor’s required rate of return.
c. The BCC percent debentures are callable by the company on December 1, Year 12, at $1,038.50. Determine the yield to call as of December 1, Year 7, assuming that BCC calls the bonds on that date.