Jerome Corporation’s bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000...

Jerome Corporation’s bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000 par value. The bond has a 6.00% nominal yield to maturity, but it can be called in 6 years at a price of $1,050. What is the bond’s nominal yield to call?

a.5.27%

b.5.54%

c.4.34%

d.6.10%

e.5.81%

Solutions

Expert Solution

Calculate the current price of the bond as follows:

Price $1,269.506069.

------------------------------------------------------------------------------------------------------------------

Calculate the yield to maturity as follows:

Semiannual rate is 2.16926%

Yield to call is 2.16926%*2 4.34%.

Therefore, Option C is correct.

jeff jeffy answered 10 months ago

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