Question

All bonds are semi-annual. All yield measures are stated as annual percentage rates.

1. What is the yield to call (YTC) of a 30 year 8% bond selling for $940? The call deferment period for the bond is 10 years.

Answer 1

  

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Face Value = $1,000

Selling Price = $940


Semi-annual Coupon = 4%*1,000 = $40

Time to Call = 10 years

Let YTC for 6 months be is r

940 = 40 * PVIFA(r%, 20) + 1,000 * PVIF(r%, 20)

Using spreadsheet or financial calculator, r = 4.46%

Semi-annual YTC = 4.46%
YTC = 2 * 4.46% = 8.92%

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