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Jerome Corp. bonds have 15 years to maturity an 8.75% coupon paid semi-annually and a $1,000 par value. The...

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Finance

Jerome Corp. bonds have

15 years to maturity

an 8.75% coupon paid semi-annually

and a $1,000 par value.

The bond has a 6.50% yield to maturity, but it can be called in6 years at a price of $1,050.

What is the bond's market price?

What is the bond's yield to call?

Answer & Explanation Solved by verified expert
3.7 Ratings (422 Votes)

                  K = Nx2
Bond Price =? [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2
                   k=1
                  K =15x2
Bond Price =? [(8.75*1000/200)/(1 + 6.5/200)^k]     +   1000/(1 + 6.5/200)^15x2
                   k=1
Bond Price = 1213.55
                  K = Time to callx2
Bond Price =? [(Semi Annual Coupon)/(1 + YTC/2)^k]     +   Call Price/(1 + YTC/2)^Time to callx2
                   k=1
                  K =6x2
1213.55 =? [(8.75*1000/200)/(1 + YTC/200)^k]     +   1050/(1 + YTC/200)^6x2
                   k=1
YTC% = 5.27

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Transcribed Image Text

Jerome Corp. bonds have15 years to maturityan 8.75% coupon paid semi-annuallyand a $1,000 par value.The bond has a 6.50% yield to maturity, but it can be called in6 years at a price of $1,050.What is the bond's market price?What is the bond's yield to call?

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