A 30-year maturity, 8.6% coupon bond paying coupons semiannually is callable in

Question

A 30-year maturity, 8.6% coupon bond paying coupons semiannually is callable in five years at a call price of $1,130. The bond currently sells at a yield to maturity of 7.6% 3.80% per half year) a. What is the yield to call? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Yield to call b. What is the yield to call if the call price is only $1,080? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Yield to call c. What is the yield to call if the call price is $1,130 but the bond can be called in two years instead of five years? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Yield to call 1%

Explanation / Answer

Par Value of Bond(FV) = 1000

Nper = 30 years= 60

YTM = 3.8 % per half year

PMT = $ 43( 8.6%/2 * 1000)

Market Price of bond = PV(rate,nper,pmt, fv) = PV(3.8%,60,43,1000) = $ 1,117.54

Yield to call = Annual Interest + [(CallPrice - Market Price)/Number of Years to call]/ (Call Price + Market Price/2)

= [86 + (1130 -1117.54)/5 ]/[1130+1117.54]/2 = 7.87 %

b)

YTC = [86+(1080-1117.540/5]/(1080+1117.54)/2 = 7.14%

c)

YTC = [86+(1130-1117.54)/2]/(1130+1117.54)/2 = 8.2%

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