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7 June, 19:11

A 20-year maturity, 9% coupon bond paying coupons semiannually is callable in five years at a call price of $1,050. The bond currently sells at a yield to maturity of 8% (4% per half-year). a. What is the yield to call annually? (D

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  1. 7 June, 19:31
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    The yield to call annually is 6.86%

    Explanation:

    The yield to call can be can be calculated using the rate formula in excel

    =rate (nper, pmt,-pv, fv)

    nper is the period to call, which is calculated 5 years the year of call multiplied by 2 as the coupon is paid twice a year that is 10

    pmt is the semi-annual coupon payable by th bond, $1000*9%*6/12=$45

    pv is the current price of the bond = coupon interest yearly/annual yield

    coupon interest is $1000*9%=$90

    annual yield is 8%

    pv=90/8%=$1,125

    fv is the call price at $1050

    yield to call=rate (10,45,-1125,1050)

    =3.43%

    annual yield to call=3.43%*2

    =6.86%
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