Question

Thatcher Corporation's bonds will mature in 11 years. The bonds have a face value of $1,000 and an 9% coupon rate, paid semiannually. The price of the bonds is $1,050. The bonds are callable in 5 years at a call price of $1,050. Do not round off intermediate. Round your answers to two decimal places.

a) What is their yield to maturity?

b) What is their yield to call?

Answer 1

Number of period in maturity					11*2	=	22
Number of period in Call					5*2	=	10
payment of semi annual coupon interest					1000*4.5%	=	$             45
Face Value							$       1,000
Current Price							$       1,050
Call Price							$       1,050
a.
	Yield to Maturity		=	=RATE(H1,H3,-H5,H4)*2
			=	8.30%
b.	Yield to call		=	=RATE(H2,H3,-H5,H6)*2
			=	8.57%

Yield to maturity is the yield an investor earns if they hold investment till maturity(11 Years in this case).Similary yield to call is the yield an investor earns is they hold investment till call period(5 Years in this case).