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1. A corporate bond has 20 years to maturity, par value of $1,000, and pays interest...

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Finance

1. A corporate bond has 20 years to maturity, par value of$1,000, and pays interest semiannually. The quoted coupon rate is8%, and the bond is priced at $950. The bond is callable in 10years at 105% of par.

A. What is the bond's yield to call?

B. What is the bond's yield to maturity?

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4.1 Ratings (760 Votes)

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

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1. A corporate bond has 20 years to maturity, par value of$1,000, and pays interest semiannually. The quoted coupon rate is8%, and the bond is priced at $950. The bond is callable in 10years at 105% of par.A. What is the bond's yield to call?B. What is the bond's yield to maturity?

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