A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in five years at a...

A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in five years at a call price of
$1,020. The bond currently sells for $1,059.34.
a) What are the yield to maturity and the yield to call of the bond?
b) What would be the yield to call annually if the call price were only $970?
c) What would be the yield to call annually if the call price were $1,020, but the bond could be called in
two years instead of five years?
d) Sketch the price of the bond as a function of the interest rate

Solutions

Expert Solution

USE RATE () function in excel to find yield. That will be semi annual yield so multiply it by 2 to get annual yield

pmt - coupon payment

fv - face value

pv - price (take -ve sign)

nper - number of coupon payments

d)
Interest rate and price has inverse relationship

LET ME KNOW IF YOU HAVE DOUBTS

jeff jeffy answered 1 year ago

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