5. A corporate bond matures in 10 years. The bond has an 8 percent semiannual coupon...

Question

Question

Answer 1

Answer #1

A: Using financial calculator

Input: FV= 1000, PMT=8%*1000/2 = 40

N=10*2=20, PV=-1075

Solve for I/Y as 3.47

Hence YTM=3.47%*2=6.95%

B: Using financial calculator

Input: FV= 1050, PMT=8%*1000/2 = 40

N=5*2=10, PV=-1075

Solve for I/Y as 3.52

Hence YTC=3.52%*2 = 7.05%

C: YTM,Since the YTM is lesser than the YTC and the bond is not expected to be called.

D: YTM, Even in that case the YTM will be lower ad so the issuer is not likely to call the bond.

Answer 2

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