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consider a 20 year ,10% annual pay bond with a full price of ksh.112 and can...

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Finance

consider a 20 year ,10% annual pay bond with a fullprice of ksh.112 and can be called n five years at ksh. 102 and canalso be called at par in 7 years

required.
1.Yield to maturity
2.Yield to first call
3.Yield to second call

Answer & Explanation Solved by verified expert
3.6 Ratings (391 Votes)

1

                  K = N
Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =20
112 =∑ [(10*100/100)/(1 + YTM/100)^k]     +   100/(1 + YTM/100)^20
                   k=1
YTM% = 8.71

2

                  K = Time to call
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTC)^k]     +   Call Price/(1 + YTC)^Time to call
                   k=1
                  K =5
112 =∑ [(10*100/100)/(1 + YTC/100)^k]     +   102/(1 + YTC/100)^5
                   k=1
YTC% = 7.39

3

                  K = Time to call
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTC)^k]     +   Call Price/(1 + YTC)^Time to call
                   k=1
                  K =7
112 =∑ [(10*100/100)/(1 + YTC/100)^k]     +   100/(1 + YTC/100)^7
                   k=1
YTC% = 7.72
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