Question

Shimo Industries has a bond outstanding with 15 years to maturity, and 7% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 5% nominal yield to maturity, but it can be called in 5 years at a price of $1,120. What is the bond’s nominal yield to call? Show work.

Answer 1

CALCULATION OF YIELD TO CALL(YTC) YTC=[INTEREST+{(CALL VALUE-PRESENT VALUE OF BOND)/CALL YEARS}]/[(CALL VALUE+PRESENT VALUE OF BOND)/2] where interest is 7% ie.70 CALL VALUE is 1120 PRESENT VALUE OF BOND is 1212(working note) CALL YEARS is 5 =[70+{(1120-1212)/5}]/[(1120+1212)/2]*100 =4.4% working note PRESENT VALUE OF BOND= PRESENT VALUE ANNUITY FACTOR(2.5%,N=30)+1000*PRESENT VALU FACTOR(2.5%,n=30) =(35*21)+(1000*.477) =735+477 =1212