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Kempton Enterprises has bonds outstanding with a $1,000 face value and 10 years left until maturity....

Kempton Enterprises has bonds outstanding with a $1,000 face value and 10 years left until maturity. They have an 11% annual coupon payment, and their current price is $1,185. The bonds may be called in 5 years at 109% of face value (Call price = $1,090).

What is the yield to maturity? Round your answer to two decimal places.

What is the yield to call if they are called in 5 years? Round your answer to two decimal places.

Solutions

Expert Solution

Interest : 1000 *.11= 110

Yield to maturity = [Interest +(Face value -current price)/ years to maturity]/[(face value +price)/2]

        = [110+(1000-1185)/10 ]/[(1000+1185)/2]

         = [110 + (-185/10] /[2185/2]

           = [110-18.5]/ 1092.5

           = .0838 or 8.38%     [using financial calculator it is approx to 8.22%]

**In financia; calculator ,put n=10 ,FV =1000,PMT =110 PV =1185

2)Yield to call : [110+(1090-1185)/5]/[(1090+1185)/2]

                     = [110 +(-95/5)]/[2275/2]

                      = [110 -19 ]/1137.5

                       = .08 or 8% [using financial calculator it is approx to 7.91%]

**yield to call on financial calculator ,PMT=110 ,n=5,PV= 1185 ,FV =1090

**This method provides approximate answer .

jeff jeffy answered 2 years ago
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