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Musya8 [376]
3 years ago
9

A bond has a $1,000 par value, nine years to maturity, and pays a coupon of 5.25% per year, semiannually. The bond is callable i

n three years at 115% of its par value. If the bond’s yield to maturity is 5.32% per year, what is its yield to call?
Please show work. Or explain how to get answer through the calculator.


A) 9.08%


B) 9.24%


C) 9.86%


D) 9.62%


E) 8.96%
Mathematics
1 answer:
WINSTONCH [101]3 years ago
4 0

Answer:

C) 9.86%

Step-by-step explanation:

Given that:

Par value of the bond = $1000

Coupon rate = 5.25%

Years of maturity = 9

years to call = 3

price to call = 115% *  1000 = 1150

YTM of the bond = 0.0532

Using Excel formula:

The current price of the bond = P-V(0.0532/2, 9*2, 0.0525*1000/2, 1000)

= $995.04

The yield to call = 2 * RATE( 3*2, 0.0525*1000/2, 995.04, 1150)

The yield to calll = 9.86%

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For this case we have the following system of equations:
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