Answer:
Answer is given below.
Explanation:
Par value of bond = $ 5000
Coupon rate = 4.75% * 6 / 12 = 2.375% Per period
Term = 20Years *2 = 40 Periods
Current price of bond = Par value * 101.30% = $5,000 * 101.30% = $5,065
Callable price = Par value + Call premium = $5,000 + $5,000 * 4.75% = S5,237.5
Callableterm = 8 Years * 2 = 16 Periods
Couponamountperperiod =Parvalue • Couponrate = $5000*2.375% = $118.75
Current yield = Coupon amount /Current price = $118.75/$5,065 = 0.023445212 = 2.345%Per period Rounded)
Currentyield = 2.345%Perperiod *2 = 4.69%Perannum
YTM = [Coupon amount + (Maturity value - Current price ) / Term] / [(Current price + Maturity value ) /2]
= [$118.75+($5,000-$5,065)/40]/[($5,065+S5,000)/2]
= $117.125 / $5032.5
= 0.023273721 = 2.33%Perperiod
YTM = 2.33% * 2 = 4.66% Per annum
Tax rate = 36%
After tax equivalent yield YTM (1 -Tax rate) = 4.66%(1-36%) = 2.9824% Per annum
Yield to call (YTC) = [Couponamount+(Call price - Current price)/Callable Term/ [(Current price+Call price)/2]
= [$118.75 + ($5,237.5 - $5,065)/16 ] / [($5,065 + $5,237.5)/ 2]
= $129.53125/ $5151.25
= 0.025145596 = 2.515%Per period (Rounded)
YTC = 2.515%2 = 5.03%Per annum (Rounded)
