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21 March, 03:42

Jerome Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,050. What is the bond's nominal yield to call?

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Answers (2)
  1. 21 March, 04:04
    0
    5.27%

    Explanation:

    Step 1

    Bond's current price.

    Coupon rate 8.75%

    YTM 6.50%

    Maturity 15

    Par value$1,000

    Periods/year 2

    Determine the bond's price

    PMT/period $43.75

    N 30

    I/YR 3.25%

    FV $1,000.00

    PV = Price $1,213.55

    Step 2

    Using the bond current price to find the YTC

    Yrs to call 6

    Call price $1,050.00

    Determine the bond's Yield to call

    N 12

    PV $1,213.55

    PMT $43.75

    FV $1,050.00

    I/YR 2.64%

    Nominal YTC 5.27%

    Therefore the bond's nominal yield to call is 5.27%
  2. 21 March, 04:10
    0
    5.01%

    Explanation:

    The bond nominal yield to call is 5.01%
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