YZ Co wants to issue a five-year redeemable bond with an annual coupon of 4%. The bond is redeemable
at par (GHS100). Tax can be ignored.
The annual spot yield curve for this risk class of bond in the financial press is given as:
One-year 3.3%
Two-year 3.8%
Three-year 4.2%
Four-year 4.8%
Five-year 5.5%
Required
Using the information above, calculate:
(a) The expected price at which the bond can be issued (2.5 marks)
(b) The yield to maturity (YTM) of the bond (2.5 marks)
Proper solution is given
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