Question

Beaker Chemical Company has 4.20% coupon bonds on the market that have 7 years left to...

Beaker Chemical Company has 4.20% coupon bonds on the market that have 7 years left to maturity. The yield-to-maturity (YTM) on these bonds is 3.72%.

a) Are these premium or discount bonds?

b) What is the current bond price?

c) What is the current yield?

d) If these bonds are callable in 5 years with a $50 call premium, what is the yield-to-call (YTC)?

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Homework Answers

Answer #1

Answer a)

Coupon > YTM

Therefore, it is a Premium Bond

Answer b)

Value of Bond =

Where r is the discounting rate of a compounding period i.e. 3.72%

And n is the no of Compounding periods 7 years

Coupon 4.20%

=

= 1029.11

Answer c)

Current Yield -= Coupon / Value of Bond

= 42 / 1029.11

= 4.08%

Answer c)

YTC =

=

= 42 + 4.178 / 1039.56

= 4.44%

NOTE: Do upvote the answer, if this was helpful.

NOTE: Please don't downvote directly. In case of query, I will solve it in comment section in no time.

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