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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

a YTM 7.50%
YTC 6.92%
b YTC 6.08%
c YTC 5.77%
d Price Interest rate
$1,463.63 5%
$1,276.76 6%
$1,124.72 7%
$1,000.00 8%
$896.81 9%
$810.71 10%
$738.25 11%

WORKINGS

jeff jeffy answered 1 year ago
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