A firm's bonds have a maturity of 8 years with a $1,000 face value, have an...

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.

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b. What is their nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places.

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Solutions

Expert Solution

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 = Yieldfrequency / 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%

jeff jeffy answered 1 year ago

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