Question

Keenan Industries has a bond outstanding with an 8.25% coupon, payable semiannually, and a $1,000 par value. The bond's dollar price is $1,066.00 The bond has a 7.47% yield to call, but it can be called in 6 years. What is the bond’s call price?

If you could show the work for this that would be awesome!

Answer 1

Par Value = $1,000
Current Price = $1,066.00

Annual Coupon Rate = 8.25%
Semiannual Coupon Rate = 4.125%
Semiannual Coupon = 4.125% * $1,000
Semiannual Coupon = $41.25

Time to Call = 6 years
Semiannual Period = 12

Annual YTC = 7.47%
Semiannual YTC = 3.735%

Let Call Price be $C

$1,066.00 = $41.25 * PVIFA(3.735%, 12) + $C * PVIF(3.735%, 12)
$1,066.00 = $41.25 * (1 - (1/1.03735)^12) / 0.03735 + $C * (1/1.03735)^12
$1,066.00 = $393.155663 + $C * 0.644015
$672.844337 = $C * 0.644015
$C = $1,044.77

Call Price = $1,044.77