Question

Boeing Corporation has just issued a callable​ (at par)​ three-year,

5.3 %

coupon bond with​ semi-annual coupon payments. The bond can be called at par in two years or anytime thereafter on a coupon payment date. It has a price of

$ 98.58

a. What is the​ bond's yield to​ maturity?

b. What is its yield to​ call?

c. What is its yield to​ worst?

Answer 1

a) A bond YTM is defined as the total return achieved since the bond is purchased and maturity. It assumes that all the coupon payments are received on time and are invested back at the same rate i.e it balances price risk and investment risk.

Calculation of bond YTM =

                               

b) A bond Yield to call is defined as the total return earned if the bond is held until its call date for before its maturity.

Calculation of bond Yield to Call :

c) Yield to Worst : Yield to worst can be defined as the lowest yield that the bond holder can expect when purchasing a callable bond. Given the data we calculated YTM as 2.91% and YTC as 3.03%. So the bond issuer won't call the bond.

The lowest yield also called as the yield to worst will be 2.91%.