Question
In: Finance
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an...
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,211, and currently sell at a price of $1,368.95.
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.
Solutions
Expert Solution
| a)Calculation of Yield to maturity | ||
| Interest as it is semi annual(1000*0.11/2) | 55 | |
| Face value | $1000 | |
| BOnd price | $1368.95 | |
| Years to maturity( as semi annual so 12*2) | 24 | |
| Yield to maturity= | Interest+ (Face value-bond price)/years to maturity | |
| (face value + bond price)/2 | ||
| 55+(1000-1368.95)/24 | ||
| (1000+1368.95)/2 | ||
| 3.35% | ||
| Yield to maturity for half year is 3.35% | ||
| Yield to maturity for full year is 6.70% | ||
| b)Calculation of Yield to call | ||
| Interest as it is semi annual(1000*0.11/2) | 55 | |
| Face value | $1000 | |
| Call price | $1211 | |
| Years to call( as semi annual so 6*2) | 12 | |
| Yield to call= | Interest+ (Face value-call price)/years to call | |
| (face value + call price)/2 | ||
| 55+(1000-1211)/12 | ||
| (1000+1211)/2 | ||
| 3.38% | ||
| Yield to call for half year is 3.35% | ||
| Yield to call for full year is 6.76% | ||
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