Question

A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in five years at a call price of $1,100. The bond currently sells at a yield to maturity of 7% (3.5% per half-year). a. What is the yield to call annually? (Do not round Intermediate calculations. Round your answer to 3 decimal places.) Meld to call 010144 b. What is the yield to call annually if the call price is only $1,050? (Do not round Intermediate calculations. Round your answer to 3 decimal places.) Yield to call c. What is the yield to call annually if the call price is $1100, but the bond can be called in two years instead of five years? (Do not round intermediate calculations. Round your answer to 3 decimal places.) Yield to call

Answer 1

Calculation of yield to call for each cases is shown below

A 1 We would first calculate current price of bond using the PV function 2 No of payments (NPER) 3 Coupon amount (PMT) 4 Par value (FV) 5 Yield to maturity (Rate) 6 Price of bond (PV) 60 S40 $1,000 3.50% $1,124.72 7 a. 8 Calculation of Yield to call annually using Rate function in excel 9 No of payments (NPER) 10 Coupon amount (PMT) 11 Price of bond (PV) 12 Call value (FV) 10 $40 $1,124.72 $1,100 13 Yield to call 6.736% 14 b 15 Calculation of Yield to call annually using Rate function in excel 16 No of payments (NPER) 17 Coupon amount (PMT) 18 Price of bond (PV) 10 S40 $1,124.72 19 Call value (FV) $1,050 20 Yield to call 5.953% 21 c. 22 No of payments (NPER) 23 Coupon amount (PMT) 24 Price of bond (PV) 25 Call value (FV) 4 $40 $1,124.72 $1,100 26 Yield to call (annual) 6.063 %

Following shows the working

A В 1We would first calculate current price of bond using the PV function 2 No of payments (NPER) 3 Coupon amount (PMT) 4 Par value (FV) 5 Yield to maturity (Rate) 6 Price of bond (PV) -30*2 = 1000*(S% / 2) 1000 0.035 =PV(B5,B2, B3,-B4) 7 а. 8 Calculation of Yield to call annually using Rate function in excel 9 No of payments (NPER) 10 Coupon amount (PMT) 11 Price of bond (PV) -5*2 1000*(S% /2) 1124.72 Call value (FV) 12 1100 (RATE (B9,-B10,B11,-B12))*2 13 Yield to call 14 b 15 Calculation of Yield to call annually using Rate function in excel 16 No of payments (NPER) 17 Coupon amount (PMT) 18 Price of bond (PV) 5#2. =1000* (8%/2) 1124.72 19 Call value (FV) 1050 20 Yield to call (RATE(B16,B17,B18,-B19)*2 21 с. 22 No of payments (NPER) 23 Coupon amount (PMT) 24 Price of bond (PV) 25 Call value (FV) 26 Yield to call (annual) -2*2 - 1000* (8% / 2 ) 1124.72 1100 =(RATE(B22,_-B23,B24,B25))*2