In: Finance
A firm's bonds have a maturity of 8 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 4 years at $1,042, and currently sell at a price of $1,082.07.
a. What is their nominal yield to maturity? Do not round
intermediate calculations. Round your answer to two decimal
places.
%___
b. What is their nominal yield to call? Do not round
intermediate calculations. Round your answer to two decimal
places.
%___
Nominal Yield to Maturity = 6.66%
Using financial calculator BA II Plus - Input details: |
# |
FV = Future Value = |
-$1,000.00 |
PV = Present Value = |
$1,082.07 |
N = Total number of periods = Number of years x frequency = |
16 |
PMT = Payment = Coupon / frequency = |
-$40.00 |
CPT > I/Y = Rate per period or YTM per period = |
3.3300 |
Convert Yield in annual and percentage form = Yield*frequency / 100 = |
6.66% |
Yield to call = 6.57%
Using financial calculator BA II Plus - Input details: |
# |
FV = Call price = |
$1,042.00 |
PV = Bond price = |
$1,082.07 |
PMT = Coupon rate x face value / frequency of coupon in a year = |
$40.00 |
N = Year to call x frequency of coupon = |
8 |
CPT > I/Y = Rate = |
3.2844 |
Yield to call or Return Investors should expect to earn in % = Rate * 2 /100 |
6.57% |