Question

# Yield to Maturity and Call with Semiannual Payments Thatcher Corporation's bonds will mature in 10 years....

Yield to Maturity and Call with Semiannual Payments

Thatcher Corporation's bonds will mature in 10 years. The bonds have a face value of \$1,000 and an 8% coupon rate, paid semiannually. The price of the bonds is \$1,100. The bonds are callable in 5 years at a call price of \$1,050. Do not round intermediate calculations. Round your answers to two decimal places.

What is their yield to maturity?
%

What is their yield to call?
%

1) Yield to maturity ( YTM ) :

Given that,

Face value = 1000

Annual coupon rate = 8%

Years to maturity = 10

Value of bond = 1100

Payment frequency = 2

Now,

To find YTM , we can use RATE function in Excel as follows :

NPER = 10 * 2 = 20

PMT = 1000 * 8% / 2 = 40

PV = -1100

FV = 1000

Therefore,

YTM =RATE(NPER,PMT,PV,FV)*2

=RATE(20,40,-1100,1000)*2

YTM = 6.62%

2) Yield to Call ( YTC ) :

Given that,

Call value = 1050

Annual coupon rate = 8%

Years to maturity = 5

Value of bond = 1100

Payment frequency = 2

Now,

To find YTC , we can use RATE function in Excel as follows :

NPER = 5 * 2 = 10

PMT = 1000 * 8% / 2 = 40

PV = -1100

FV = 1050

Therefore,

YTC =RATE(NPER,PMT,PV,FV)*2

=RATE(10,40,-1100,1050)*2

YTC = 6.49%

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