Question

Problem 10-9 Yield to Call (LO1, CFA5)

Atlantis Fisheries issues zero coupon bonds on the market at a price of $421 per bond. These are callable in 7 years at a call price of $640. Using semiannual compounding, what is the yield to call for these bonds? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

K = Time to callx2

Bond Price =∑ [(Annual Coupon)/(1 + YTC/2)^k]     +   Call Price/(1 + YTC/2)^Time to callx2

k=1

K =7x2

421 =∑ [(0*1000/200)/(1 + YTC/200)^k]     +   640/(1 + YTC/200)^7x2

k=1

YTC% = 6.07