2. Thatcher Corporation’s bonds will mature in 20 years. The bonds have a face value of $1,000 and an 9% coupon rate, paid semiannually. The price of the bonds is $1,350. The bonds are callable in 5 years at a call price of $1,250. What is their yield to maturity? What is their yield to call?
1)
Number of periods = 20 * 2 = 40
Coupon = (0.09 * 1000) / 2 = 45
Yield to maturity = 5.98%
Keys to use in a financial calculator:
2nd I/Y 2
FV 1000
PV -1,350
PMT 45
N 40
CPT I/Y
2)
Number of periods = 5 * 2 = 10
Coupon = (0.09 * 1000) / 2 = 45
Yield to call = 5.36%
Keys to use in a financial calculator:
2nd I/Y 2
FV 1,250
PV -1,350
PMT 45
N 10
CPT I/Y
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