Question
In: Finance
Jerome Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000...
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 $1,195. What is the bond's nominal yield to call?
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Solutions
Expert Solution
| K = Nx2 |
| Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 |
| k=1 |
| K =15x2 |
| Bond Price =∑ [(8.75*1000/200)/(1 + 6.5/200)^k] + 1000/(1 + 6.5/200)^15x2 |
| k=1 |
| Bond Price = 1213.55 |
| K = Time to callx2 |
| Bond Price =∑ [( Coupon)/(1 + YTC/2)^k] + Call Price/(1 + YTC/2)^Time to callx2 |
| k=1 |
| K =6x2 |
| 1213.55 =∑ [(8.75*1000/200)/(1 + YTC/200)^k] + 1195/(1 + YTC/200)^6x2 |
| k=1 |
| YTC% = 7 |
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