SOA Exam FM Sample Question 135
Study guide: Exam FM-2
A 1000-par value 30-year bond has an annual coupon rate of 7% paid semiannually. After an initial 10-year period of call protection, the bond is callable immediately following the payment of any of the 20th through the 59th coupons.
- i) If the bond is called before payment of the 40th coupon, the redemption value is 1250.
- ii) If the bond is called immediately after the payment of any of the 40th through the 59th coupons, the redemption value is 1125.
- iii) If the bond is not called, it will be redeemed at par.
To ensure that the bond will provide at least an annual nominal yield rate of 5% convertible semiannually, it must be assumed that the bond will be called or redeemed immediately after the payment of the n-th coupon.
Calculate n.
- A) 20
- B) 39
- C) 40
- D) 59
- E) 60
Answer this question and see the worked solution
Concepts tested
- Bond Price
- Bonds
- Yield Rate
- Face Value
- Coupon
- Coupon Rate
- Redemption Value
- Market Value
- Callable Bond