A Corporate Bond with 10% Coupon Rate and remaining maturity of 6 years is curre

Question

A Corporate Bond with 10% Coupon Rate and remaining maturity of 6 years is currently selling for $ 1,130. This is a Callable Bond in 2 years time. If called the issuer will pay the face value of Bond, $1,000, plus 10% of the face value. Your best friend wants to buy this Bond and plans to hold it for 3 years at the end of which he would sell it for $1,050. Various calculated Bond Yields are listed as Answer along with name of each type of yield as questions. Your task is to match the appropriate Answer with Question. What is the Yield to Maturity? What is Yield to call? Yield to Holding period? Current Yield?

Explanation / Answer

You can calculate Yield to Maturity as YTM = [(Face value/Bond price) 1/Time period]-1.

It is the return that an investor receives for holding a bond until it matures.

Yield to call is the rate of interest earned when a bond is called. It is Calculated as:

Yield to call = [Annual Interest + (Call Price – Market Price) / No. of Years to Call]/ (Call Price +Market Price)/2

Yield to holding period is the return that an investor gets while holding a particular investment.

Holding Period Return = Income + (End of Period Value – Initial Value) / Initial Value

Current Yield refers to the ratio between annual income and the price of security. It can be calculated as follows:

Current Yield = Annual Cash Flows/ Market Price

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.