Please write out formula and steps A bond is currently sold at $980, it has 20...

Please write out formula and steps

A bond is currently sold at $980, it has 20 years to maturity and 9% coupon rate. The bond will be called in 5 years, the bond will be called at a premium of $1,050 of $1,050, what is the yield to call?

Expert Solution

Face value	$1,000
Coupen annually	9%

Coupen amount	$90

RemainingMaturity years	15

Bond Price	$1,050.00

YTM :

Price of bond =	Coupen * PVAF( YTM, Maturity) + Redemption value * PVF( YTM,Maturity)



Here bond price is greater than face value hence YTM be less than Coupen rate
Therefore lets assume YTM be 8%

Price of bond =	90PVAF(8%,15) + 1000PVF(8%,15)
	908.5595+1000.3152
	1085.555

at coupen rate price of bond will be same as face value that is $1000

There fore YTm is between 8% and 9%

YTM =	8% +{ (1085.555-1050/(1085.555-1050)+ (1050-1000) } *(9-8)
	8% + 35.555/85.555
	8.42%

jeff jeffy answered 2 years ago

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