Question

Compute the YTC for the FGH Company bond maturing in 10 years (8 percent coupon rate...

Compute the YTC for the FGH Company bond maturing in 10 years (8 percent coupon rate and a face value of $1000) with the call provision of "after 7 at 110" and a market price of 990.

Enter your answer as a percentage without "%", keep two decimal places (e.g., enter 6.375% as 6.38).

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Answer #1

YTC is calculated using the RATE function in Excel with these inputs :

nper = 7 (7 years until call)

pmt = 8% * 1,000 (8% coupon rate on face value of 1,000 - this is entered as a positive value as it represents cash inflows of coupon payments)

pv = -990 (current market price of bond - this is entered as a negative value as it represents a cash outflow which is the purchase price of the bond)

fv = 110/100*1,000 (call price which is 110 per 100 face value of the bond - this is entered as a positive value as it represents a cash inflow which is the call price receivable on calling the bond)

RATE is calculated to be 9.28%. This is the YTC of the bond

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