Question

Jerome Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000...

Jerome Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,195. What is the bond's nominal yield to call?

Select the correct answer.

a. 7.32%
b. 7.16%
c. 7.64%
d. 7.48%

Homework Answers

Answer #1

Answer is 7.00%.

Calculation of current price:

Face Value = $1,000

Annual Coupon Rate = 8.75%
Semiannual Coupon Rate = 4.375%
Semiannual Coupon = 4.375% * $1,000
Semiannual Coupon = $43.75

Annual YTM = 6.50%
Semiannual YTM = 3.25%

Time to Maturity = 15 years
Semiannual Period to Maturity = 30

Current Price = $43.75 * PVIFA(3.25%, 30) + $1,000 * PVIF(3.25%, 30)
Current Price = $43.75 * (1 - (1/1.0325)^30) / 0.0325 + $1,000 / 1.0325^30
Current Price = $1,213.55

Calculation of YTC:

Current Price = $1,213.55
Call Price = $1,195
Semiannual Coupon = $43.75

Time to Call = 6 years
Semiannual Period to Call = 12

Let semiannual YTC be i%

$1,213.55 = $43.75 * PVIFA(i%, 12) + $1,195 * PVIF(i%, 12)

Using financial calculator:
N = 12
PV = -1213.55
PMT = 43.75
FV = 1195

I = 3.50%

Semiannual YTC = 3.50%
Annual YTC = 2 * 3.50%
Annual YTC = 7.00%

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
Jerome Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000...
Jerome Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,105. What is the bond's nominal yield to call? Select the correct answer. a. 5.80% b. 5.50% c. 5.35% d. 5.95% e. 5.65%
Jerome Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000...
Jerome Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,115. What is the bond's nominal yield to call? Select the correct answer. a. 6.53% b. 6.07% c. 6.76% d. 5.84% e. 6.30%
Mercy Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000...
Mercy Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,050. What is the bond's nominal yield to call? please show all work
cayon Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000...
cayon Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 10 years at a price of $1,050. What is the bond's nominal yield to call? *Mention the excel functions you used and the value of each input you entered.
Niendorf Corporation's 25-year maturity bonds have an 8.75% coupon rate with interest paid semiannually, and a...
Niendorf Corporation's 25-year maturity bonds have an 8.75% coupon rate with interest paid semiannually, and a par value of $1,000. The bonds are currently selling at a premium price of $1,100 in the bond market. What is their yield to maturity (YTM)?
Kebt Corporation's Class Semi bonds have a 12-year maturity and an 8.75% coupon paid semiannually (4.375%...
Kebt Corporation's Class Semi bonds have a 12-year maturity and an 8.75% coupon paid semiannually (4.375% each 6 months), and those bonds sell at their $1,000 par value. The firm's Class Ann bonds have the same risk, maturity, nominal interest rate, and par value, but these bonds pay interest annually. Neither bond is callable. At what price should the annual payment bond sell? a. $ 937.56 b. $1,036.18 c. $ 986.25 d. $ 961.60 e. $1,010.91
Niendorf Corporation's 25-year maturity bonds have an 8.75% coupon rate with interest paid semiannually, and a...
Niendorf Corporation's 25-year maturity bonds have an 8.75% coupon rate with interest paid semiannually, and a par value of $1,000. The bonds are currently selling at a premium price of $1,150 in the bond market. What is their yield to maturity (YTM)? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.
- Nesmith Corporation's outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 9 years...
- Nesmith Corporation's outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 9 years to maturity, and a 10% YTM. What is the bond's price? - A firm's bonds have a maturity of 10 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 5 years at $1,054.06, and currently sell at a price of $1,105.17. What are their nominal yield to maturity and their nominal yield to call?
Moody's Corporation's bonds have a 15-year maturity, a 7.25% coupon paid semiannually, and a par value...
Moody's Corporation's bonds have a 15-year maturity, a 7.25% coupon paid semiannually, and a par value of $1,000. If the going market interest rate for bonds of similar risk and maturity is 6.00% (based on semiannual compounding), what is the bond's price? Your answer should be between 1075.00 and 1275.00.
Stankley Corporation's bonds have a face value of $1,000 and a 5.0% coupon paid semiannually; the...
Stankley Corporation's bonds have a face value of $1,000 and a 5.0% coupon paid semiannually; the bonds mature in two years. What is the price of the bond if the yield to maturity is 6.0%? $981.41 $878.72 $965.35 $959.20 $1,074.34
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT