YIELD TO MATURITY A firm's bonds have a maturity of 10 years with a $1,000 face...

YIELD TO MATURITY

A firm's bonds have a maturity of 10 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 5 years at $1,052, and currently sell at a price of $1,099.77.

What is their nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.

%
What is their nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places.

%

Solutions

Expert Solution

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2

k=1

K =10x2

1099.77 =∑ [(8*1000/200)/(1 + YTM/200)^k] + 1000/(1 + YTM/200)^10x2

k=1

YTM% = 6.62

K = Time to callx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTC/2)^k] + Call Price/(1 + YTC/2)^Time to callx2

k=1

K =5x2

1099.77 =∑ [(8*1000/200)/(1 + YTC/200)^k] + 1052/(1 + YTC/200)^5x2

k=1

YTC% = 6.53

jeff jeffy answered 1 year ago

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