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Jerome Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000...

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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
                   k=1
                  K =6x2
1213.55 =? [(8.75*1000/200)/(1 + YTC/200)^k]     +   1195/(1 + YTC/200)^6x2
                   k=1
YTC% = 7

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