Total return of the bond on the assumption

An investor is considering buying a bond from Company HelloWorld. The bond pays 12% semi-annual coupon, it has 15 years to maturity and the current price of this bond is $1,150. This bond is callable at the end of year 5 (the first and only call date). The call price of the bond is $1,120. What is the RTC for this bond? Suppose our investor’s investment horizon is only 7 years (a period extending beyond the first call date, but shorter than the maturity of the bond). Also assume that this investor believes that she can invest all proceeds @ 9%. (a) Compute the total return of the bond on the assumption that the bond is called in 5 years. (b) Compute the total return of the bond on the assumption that the bond is not called and lives until maturity.

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