tsbury Ltc. has issued a bond two years ago with a par value of Rp100 million. The maturity of the bond is 15 years, with a coupon rate of 10%. The bond can be called (callable bond) in year 10 with a premium price of 25% above par value. The risk-free rate is 5% and the investor risk premium is 3%. Tax rate is 25%. Based on the information, calculate the intrinsic value of the bond based on: (a) call

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 4P
icon
Related questions
Question
Catsbury Ltc. has issued a bond two years ago with a par value of Rp100 million. The maturity of the bond is 15 years, with a coupon rate of 10%. The bond can be called (callable bond) in year 10 with a premium price of 25% above par value. The risk-free rate is 5% and the investor risk premium is 3%. Tax rate is 25%. Based on the information, calculate the intrinsic value of the bond based on: (a) callable provision; (b) normal maturity.
Expert Solution
steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Rate Of Return
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT