Assume that you purchased a 9% coupon, 10-year, $1000 par, semi-annual payment bond with a current...

Assume that you purchased a 9% coupon, 10-year, $1000 par, semi-annual payment bond with a

current price of $915. Calculate its:

a) Yield to maturity b) Yield to call if the bond is callable in 3-years at a 5% premium. [2 marks]

c) Yield to put if the bond is puttable in 3-years at a 5% discount. [2 marks]

d) Compare YTC and YTP and explain why YTC is generally greater than YTP?

Expert Solution

YTM, YTC and YTP are calculated using the Rate function of Excel as follows:

(a) YTM= 10.386569%

(b) YTC after 3 years= 13.933106%

(c) YTP after 3 years= 10.947459%

(d) YTC is higher than YTP because call is at a premium while put is at a discount, all other factors being common.

jeff jeffy answered 1 month ago

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