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Alenkasestr [34]
3 years ago
11

A 6.75 percent coupon bond with 26 years left to maturity can be called in six years. The call premium is one year of coupon pay

ments. It is offered for sale at $1,135.25. What is the yield to call of the bond? (Assume interest payments are semiannual.)
Business
1 answer:
kiruha [24]3 years ago
8 0

Answer:

The yield to call  is 5.07%

Explanation:

The yield to call can be computed using the rate formula in excel,which is given as :=rate(nper,pmt,-pv,fv)

nper is the number of years to call which is 6 years

pmt is the annual interest coupon payable by the bond,which is :6.75%*$1000=$67.5

The pv is the current price at which the bond is offered to investors. i.e $1,135.25

fv is the price at the bond would be called in six years i.e par value+premium

par value is $1000

premium is $67.5

call price is $1067.5

=rate(6,67.5,-1135.25,1067.5)

rate=5.07%

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