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Vadim26 [7]
3 years ago
11

Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 7.4% with semiannual payments of

$37, and a par value of $1,000. The price of each bond in the issue is $1,200.00. The bond issue is callable in 5 years at a call price of $1,074.
What is the bond's current yield? Round your answer to two decimal places. Do not round intermediate calculations.
Business
1 answer:
frutty [35]3 years ago
5 0

Answer:

Current yield is 6.17%

<em>YTD is 5.43%</em>

<em>YTC is 4.26%</em>

Explanation:

Tenor: 15 years

-> number of payment (NPer) is 30 (= 15 years * 2 for semiannual)

Coupon rate: 7.4%

- > semiannual payments (PMT): $37 = ($1000*7.4%/2)

Future value (FV): $1000

Present value (PV): $1200

Current yield = annual coupon/ current price = $37*2/$1200 = 6.17%

<u>Extra: </u>

We use excel to calculate  yield to date (YTD) or nominal yield:

= Rate(Nper, PMT, - PV,FV) = Rate(30,37,-1200,1000) = 2.717% semiannual

-> annual rate is 5.43%

The bond issue is callable in 5 years at a call price of $1,074, then FV is $1074

Yield to call = rate(10,37,-1200,1074) = 2.13% semiannual

-> annual rate is 4.26%

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