FIN361 HWPS for posting Sp 2018(2) Word t References Mailings Review View Tell m

Question

FIN361 HWPS for posting Sp 2018(2) Word t References Mailings Review View Tell me what you want to do AaBbCcD AaBbCcl AaBbCcDo AaBbCcDc AaBbC AaBbCcD INormal Body TextTNoSpac 1 TTable Pa Heading 1 Heading 2 x' A-ay-?? ?'-- ? ,-, - nt Paragraph Styles roblem 3 (2 points Marco Verratti's bonds currently sell for $1,175.89 with par value of $1,000.00. The bonds pay 13.00 percent coupon rate and have a 17-year maturity but they can be called in 6 years at $1,097.00. There are no costs but the call premium and refund the bonds. In addition, assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the bonds' yield to maturity? What is the bonds' yield to call? Prohlem 4 (3 naintsl

Explanation / Answer

Answer a.

Par Value = $1,000
Current Price = $1,175.89

Annual Coupon Rate = 13%
Semiannual Coupon Rate = 6.50%
Semiannual Coupon = 6.50% * $1,000
Semiannual Coupon = $65

Time to Maturity = 17 years
Semiannual Period to Maturity = 34

Let semiannual YTM be i%

$1,175.89 = $65 * PVIFA(i%, 34) + $1,000 * PVIF(i%, 34)

Using financial calculator:
N = 34
PV = -1175.89
PMT = 65
FV = 1000

I = 5.364%

Semiannual YTM = 5.364%
Annual YTM = 2 * 5.364%
Annual YTM = 10.728% or 10.73%

Answer b.

Par Value = $1,000
Current Price = $1,175.89
Call Price = $1,097.00

Annual Coupon Rate = 13%
Semiannual Coupon Rate = 6.50%
Semiannual Coupon = 6.50% * $1,000
Semiannual Coupon = $65

Time to Call = 6 years
Semiannual Period to Call = 12

Let semiannual YTC be i%

$1,175.89 = $65 * PVIFA(i%, 12) + $1,097 * PVIF(i%, 12)

Using financial calculator:
N = 12
PV = -1175.89
PMT = 65
FV = 1097

I = 5.109%

Semiannual YTC = 5.109%
Annual YTC = 2 * 5.109%
Annual YTC = 10.218% or 10.22%

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