Question

3. Currently, BCA's bonds sell for $1,145. They pay a 8% semi-annual coupon, have a 14-year...

3. Currently, BCA's bonds sell for $1,145. They pay a 8% semi-annual coupon, have a 14-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future.

USE FINANCIAL CALCULATOR AND SHOW HOW

3a. What is the yield to maturity for this bond?

3b. What is the yield to call for this bond?

Homework Answers

Answer #1

YTM is the discount rate at which the price of the bond is calculated:

Price =

where C= coupon amount = (8/2)% of 1000 = 40 since it's semi annual coupon

n= number of periods= 14*2= 28

1145 =

this gives us approx 3.2%, hence annualized YTM= 2*3.2= 6.4%

It can also be calculated by the formula = (C+(F-P)/n)/((C+F)/2)= (40+(1000-1145)/28)/((1000+1145)/2) =~3.2%

Similarly, Yield to call (YTC) = (C+(F-CP)/n)/((F+CP)/2), F= Face value; CP= Call price

= (40+(1000-1050)/10)/((1000+1050)/2) = 3.4%

Hence annualized YTC = 2*3.4 = 6.8%

Please reach out in case of any doubts

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Currently, Bruner Inc.'s bonds sell for $1,110. They pay a $120 annual coupon, have a 15-year...
Currently, Bruner Inc.'s bonds sell for $1,110. They pay a $120 annual coupon, have a 15-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and...
Liberty Inc.'s semi-annual bonds currently sell for $1,175. The annual coupon rate is 12.5%. the bonds...
Liberty Inc.'s semi-annual bonds currently sell for $1,175. The annual coupon rate is 12.5%. the bonds have a 15-year maturity, and a $1,000 par value, but they can be called in 6 years at $1,080. Assume that no costs other than the premium would be incurred to call and refund the bonds, also assume the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bonds YTM and...
Company Triple A semi-annual par value bonds currently sell for 105% of par. They have a...
Company Triple A semi-annual par value bonds currently sell for 105% of par. They have a 6.50% coupon rate and a 25-year maturity and are callable in 6 years at an 8% premium. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should...
Company Triple A semi-annual bonds currently sell for $1,055. They have a 5.50% coupon rate and...
Company Triple A semi-annual bonds currently sell for $1,055. They have a 5.50% coupon rate and a 25-year maturity and are callable in 6 years at $1,100.00. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if...
Marco Verratti's bonds currently sell for $1,175.89with par value of $1,000.00.  The bonds pay 13.00 percent coupon...
Marco Verratti's bonds currently sell for $1,175.89with par value of $1,000.00.  The bonds pay 13.00 percent coupon rate and have a 17-year maturity, but they can be called in 6 years at $1,097.00. There are no costs but the call premium and refund the bonds.  In addition, assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the bonds’ yield to maturity? What is the bonds’ yield to call?
Taussig Corp.'s bonds currently sell for $1,150. They have a 6.75% annual coupon rate and a...
Taussig Corp.'s bonds currently sell for $1,150. They have a 6.75% annual coupon rate and a 15-year maturity, but they can be called in 6 years at $1,067.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn...
Allied Corp.'s bonds currently sell for $850. They have a 6.35% semiannual coupon rate and a...
Allied Corp.'s bonds currently sell for $850. They have a 6.35% semiannual coupon rate and a 10-year maturity, but they can be called in 5 years at a call price of $1,060.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. a) Calculate the effective yield to maturity. b) Calculate...
McCue Incis bonds currently sell for $1,100. They pay a $90 annual coupon, have a 25-year...
McCue Incis bonds currently sell for $1,100. They pay a $90 annual coupon, have a 25-year maturity, and al $1,000 par value, but they can be called in 5 years at $1,050. Assume that interest rates expected te remain at curent levels on into the future. What is the difference between these bonds' YTMs and YIC 0.99% 1.11% 0.66% 0.77% 0.88%
Question 3 I. Colours Company 10% coupon bonds pay interest annually. When you bought one of...
Question 3 I. Colours Company 10% coupon bonds pay interest annually. When you bought one of these bonds, it had 20 years to maturity, and the appropriate discount rate was 7%. After one year, the discount rate on such bonds is 8%. You are considering to sell the bond. a) Calculate the price at which you bought the bond. b) Calculate the price at which you will sell the bond after one year. c) Will you be happy with this...
1.) Kay Corporation's 5-year bonds yield 6.30% and 5-year T-bonds yield 4.40%. The real risk-free rate...
1.) Kay Corporation's 5-year bonds yield 6.30% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the default risk premium for Kay's bonds is DRP = 1.30% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) × 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on...