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

Free

80.2K

Verified Solution

Question

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?

Answer & Explanation Solved by verified expert

4.1 Ratings (760 Votes)

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

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

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

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?