Question

A 10-year maturity, 6.5% coupon bond paying coupons semiannually is callable in five years at a call price of $1,010. The bond currently sells at a yield to maturity of 6% (3% per half-year). a. What is the yield to call annually? (Do not round intermediate calculations. Round your answer to 3 decimal places.) b. What is the yield to call annually if the call price is only $960? (Do not round intermediate calculations. Round your answer to 3 decimal places.) c. What is the yield to call annually if the call price is $1,010, but the bond can be called in two years instead of five years? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

Answer 1

Answer:

Please find attached file for complete answer solution and explanation of same question.

Explanation:

Answer 2

Answer:

1a.2.388% 1b.3.469% 1c.5.970%

Explanation:

YTM formula

=C+F-P/n ÷F+P/2 where;

F= face value

P= price

C= coupon

n= period

in this case

F=$1000 P=$1010 n=5 C =1000*6.5=65

Annually=65×2=130

substituting to formula

130+1000-1010/5 ÷1000+1010/2

=0.02388/2.388%

If 960

130+1000-960/5 ÷1000+960/2

=0.03469/3.469%

If collable in 2 years price 1010

130+1000-1010/2 ÷ 1000+1010/2

=0.05970/5.970%