Jerome Corporation's bonds have 15 years to maturity, an 8.75%
coupon paid semiannually, and a $1,000...
Free
70.2K
Verified Solution
Link Copied!
Question
Finance
Jerome Corporation's bonds have 15 years to maturity, an 8.75%coupon paid semiannually, and a $1,000 par value. The bond has a6.50% nominal yield to maturity, but it can be called in 6 years ata price of $1,195. What is the bond's nominal yield to call?
a. 7.15%
b. 7.00%
c. 7.60%
d. 7.45%
e. 7.30%
Answer & Explanation
Solved by verified expert
4.3 Ratings (926 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 =? [( Coupon)/(1 + YTC/2)^k]
+ Call Price/(1 + YTC/2)^Time to callx2
