Question

Six years ago the Singleton Company issued 20-year bonds with a 14% YIELD TO CALL annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, 5 years of call protection. Today Singleton called the bonds. Compute the realized rate of 7-8 with return for an investor who purc they were called. Explain why the investor should or should not be happy that Singleton the bonds when they were issued and held them until called them

Answer 1

Step 1	Enter	6
Step 2	Press	N
Step 3	Enter	-1000
Step 4	Press	PV
Step 5	Enter	1090
Step 6	Press	FV
Step 7	Enter	140
Step 8	Press	PMT
Step 9	Press	CPT
Step 10	Press	I/Y
Result		15.03%

Hence, realized rate of return is 15.03%

Investors should not be happy, they must invest at a lower rate of return. Bonds will be called only when rate of return was decreased so that calling bonds will benefit company.