Question

A firm's bonds have a maturity of 8 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 4 years at $1,151.36, and currently sell at a price of $1,278.60. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places.

What is their YTM?

What is their YTC?

Answer 1

YTM = (-) 1.126%

Calculation :-

YTM = (C + (F - P) / n) / ((F + P) / 2)

C = Coupon or Interest Payment Annually
F = Face Value
P = Price
n = Years to Maturity

Therefore;

YTM = (22 + (1000 - 1278.60) / 8 / (((1000 + 1278.60) / 2)

YTM = ((-)12.825 / 1139.30) x 100

YTM = (-) 1.126%

YTC = (-)7.035%

Calculation :-

YTC = (C + (F - CP) / n) / ((F + CP) / 2)

C = Coupon or Interest Payment Annually
F = Face Value
P = Call Price
n = Years to Call

Therefore;

YTC = (22 + (1000 - 1151.36) / 4 / (((1000 + 1151.36) / 2)

YTC = ( (-)53.68 / 1075.68 )

YTC = (-)7.035%