A 15-year, 14% semiannual coupon bond with a par value of $1,000 may be called i
ID: 2757265 • Letter: A
Question
A 15-year, 14% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,075. The bond sells for $1,050. (Assume that the bond has just been issued.)
What is the bond's yield to maturity? Round your answer to two decimal places.
%
What is the bond's current yield? Round your answer to two decimal places.
%
What is the bond's capital gain or loss yield? Loss should be indicated with minus sign. Round your answer to two decimal places.
%
What is the bond's yield to call? Round your answer to two decimal places.
%
A 15-year, 14% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,075. The bond sells for $1,050. (Assume that the bond has just been issued.)
What is the bond's yield to maturity? Round your answer to two decimal places.
%
What is the bond's current yield? Round your answer to two decimal places.
%
What is the bond's capital gain or loss yield? Loss should be indicated with minus sign. Round your answer to two decimal places.
%
What is the bond's yield to call? Round your answer to two decimal places.
%
Explanation / Answer
Answer a Bond yield to maturity= (C+((F-P)/n))/((F+P)/2)
C= Coupan/interest payment
F=face value
P= Price
n=Year to maturity
YTM =(70+((1000-1050)/30))/((1000+1050)/2)
= 6.67%(approx)
(using excel funtion 6.613)
YTM = 6.613*2= 13.23%
Answer b
Bonds current yield = 140/1050 = 13.33%
Answer C
Capital gain or loss 13.23%-13.33%=0.10%
Answer D
Yield to call = (70+((1075-1050)/8))/((1075+1050)/2)
= 6.89 (aaprox)
Using excel function 6.90
Annual = 6.90*2= 13.80%
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