Regal Health Plans issued a ten-year, 12 percent annual coupon bond a few years ago. The bond now sells for $1,100. The bond has
a call provision that allows Regal to call the bond in four years at a call price of $1,060. The bond has a cell provision that allows Regal to call the bond in four years at the call price of $1,060.
a. What is the bond's yield to maturity?
b. What is the bond's yield to call?
a. What is the bond's yield to maturity?
b. What is the bond's yield to call?
2 answers:
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Answer: $897.03
Explanation:
You can use Excel to calculate this.
The bond is a semi-annual bond so you need to adjust the variable for this first.
Number of periods = 25 * 2 = 50 semi-annual periods
Coupon = 7.5% * 1,000 * 0.5 semi-annual adjustment = $37.50
Yield = 8.5% / 2 = 4.25%
Value to you = $897.03
