A $1000 Bond Is Redeemable at Par in 20 Years

A $1000 bond is redeemable at par in 20 years.The bond is callable at the end of 10 years at 1100.The price of the bond to yield j₂ = 5% is
• $1125.51 assuming the bond is held to maturity
• $1138.97 assuming the bond is called at 10 years
Which of the following statements is true?
(I) If you pay $1125.51 and bond is called after 10 years,the yield will exceed j₂ = 5%
(II) If you pay $1138.97 and bond is called after 10 years,the yield will be less than j₂ = 5%

A) Neither (I) or (II)
B) Both (I) and (II)
C) (I) only
D) (II) only

Correct Answer:

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