Author Question: Suppose you are considering two bonds that will be issued tomorrow. Both are rated double A (AA), ... (Read 43 times)

Hunchojack2019!! · **on:** Aug 7, 2023

Suppose you are considering two bonds that will be issued tomorrow. Both are rated double A (AA), both mature in 15 years, both have an 8% coupon, neither can be called except for sinking fund purposes, and both are offered to you at their $1,000 par values. However, Bond SF has a sinking fund while Bond NSF does not. Under the sinking fund, the company must call and pay off 7% of the bonds at par each year. The yield curve at the time is upward sloping. The bond’s prices, being equal, are likely in equilibrium, as Bond SF would generally be expected to have the same yield as Bond NSF.

◦ true
◦ false

knguyen · **Reply #1 on:** Aug 7, 2023

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