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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.

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

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

    %

Solutions

Expert Solution

a

                  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
b
                  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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