Question

Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, 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 $1,085. What is the bond’s nominal yield to call?

6.10% 5.55% 6.83% 4.88% 5.91%

Answer 1

Calculating Price of Bond

Using TVM Calculation,

PV = [FV = 1,000, PMT = 41.25, N= 30, I = 0.065/2]

PV = $1,166.09

Calculating Yield to Call,

Using TVM Calculation,

I = [PV = -1,166.09, FV = 1,085, N = 12, PMT = 41.25]

I = 6.10%

Yield to Call = 6.10%