Question

4. A 20-year maturity $1,000 par value 9% coupon bond paying coupons annually is callable in five years at a call price of $1,050. The bond currently sells at a yield to maturity of 8%. What is the yield to call? .01

Answer 1

? X PV 1 = 0.08 Rate Nper Pmt Fv Type 1 1 90 1000 o = 20 = 90 = 1000 = -1098.181474 Returns the present value of an investment: the total amount that a series of future payments is worth now. Type is a logical value: payment at the beginning of the period = 1; payment at the end of the period = 0 or omitted. Formula result = $1,098.18 Help on this function OK Cancel

Bond price is $1,098.18

Function Arguments ? x RATE Nper 5 Pmt 90 Pv -1050 FV 1000 Type o 1 1 1 1 = 5 = 90 = -1050 = 1000 1 = 0 = 0.077557682 Returns the interest rate per period of a loan or an investment. For example, use 6%/4 for quarterly payments at 6% APR. Type is a logical value: payment at the beginning of the period = 1; payment at the end of the period = 0 or omitted. Formula result = 7.76% Help on this function OK Cancel

Hence, Yield to maturity is 7.76%

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