Question

Boeing Corporation has just issued a callable​ (at par)​ three-year, 4.9 % coupon bond with​ semi-annual coupon payments. The bond can be called at par in two years or anytime thereafter on a coupon payment date. It has a price of $ 98.56

a. What is the​ bond's yield to​ maturity?

b. What is its yield to​ call?

c. What is its yield to​ worst?

Answer 1

a). To find the YTM, we need to put the following values in the financial calculator:

INPUT	3*2=6		-98.56	(4.9%/2)*100=2.45	100
TVM	N	I/Y	PV	PMT	FV
OUTPUT		2.71

Hence, YTM = 2r = 2 x 2.71% = 5.43%

b). To find the YTC, we need to put the following values in the financial calculator:

INPUT	2*2=4		-98.56	(4.9%/2)*100=2.45	100
TVM	N	I/Y	PV	PMT	FV
OUTPUT		2.84

Hence, YTM = 2r = 2 x 2.84% = 5.67%

c). Our worst-case scenario is that the company will mature the bond in 3 years, and we'll realize a yield of 5.43% instead of YTC 5.67%. The yield to worst is 5.43%.