Alex plans to purchase a callable bond Verizon Inc. The bond is 20 year to matur

Question

Alex plans to purchase a callable bond Verizon Inc. The bond is 20 year to maturity, Carrie 13.5% annual coupon, paid semi annually, and have a 1000 Park value. The bond is selling now $1287 each. The bond can be called back in seven years at a call price of $1067.50. What is that yield to call for these bonds? Round two decimal places in percentage form. Alex plans to purchase a callable bond Verizon Inc. The bond is 20 year to maturity, Carrie 13.5% annual coupon, paid semi annually, and have a 1000 Park value. The bond is selling now $1287 each. The bond can be called back in seven years at a call price of $1067.50. What is that yield to call for these bonds? Round two decimal places in percentage form.

Explanation / Answer

Hi,

Please find the detailed answer as follows;

Nper = 7*2 = 14 (indicates the period over which interest payments are made)

PMT = 1000*13.5%*1/2 = 67.50 (indicates the amount of interest payment)

PV = 1287 (indicates the present value)

FV = 1067.50 (indicates the future/face value)

Rate = (indicates the yield to call)

Yield to Call = Rate(Nper,PMT,PV,FV)*2 = Rate(14,67.50,-1287,1067.50)*2 = 8.67%

Thanks.

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