Question
In: Finance
1. A corporate bond has 20 years to maturity, par value of $1,000, and pays interest...
1. A corporate bond has 20 years to maturity, par value of $1,000, and pays interest semiannually. The quoted coupon rate is 8%, and the bond is priced at $950. The bond is callable in 10 years at 105% of par.
A. What is the bond's yield to call?
B. What is the bond's yield to maturity?
Solutions
Expert Solution
A
| K = Time to callx2 |
| Bond Price =∑ [(Semi Annual Coupon)/(1 + YTC/2)^k] + Call Price/(1 + YTC/2)^Time to callx2 |
| k=1 |
| K =10x2 |
| 950 =∑ [(8*1000/200)/(1 + YTC/200)^k] + 1050/(1 + YTC/200)^10x2 |
| k=1 |
| YTC% = 9.09 |
B
| K = Nx2 |
| Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 |
| k=1 |
| K =20x2 |
| 950 =∑ [(8*1000/200)/(1 + YTM/200)^k] + 1000/(1 + YTM/200)^20x2 |
| k=1 |
| YTM% = 8.53 |
jeff jeffy answered 10 months agoRelated Solutions
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