Question

Boeing Corporation has just issued a callable​ (at par)​ three-year, 5.4% coupon bond with​ semi-annual coupon payments. The bond can be called at par in two years or anytime thereafter on a coupon payment date. It has a price of $99.46.

a. What is the​ bond's yield to​ maturity?

b. What is its yield to​ call?

c. What is its yield to​ worst?

Answer 1

A B E 1 2 a) 3 4 5 6 $100.00 2 3 6 7 nper 8 9 10 Semi Annual Yield to Maturity using Excel Formula = Rate(nper, PMT,-PV,FV) Where, Face Value / Par Value Period Per Year (Semi-annual) No of Years Period (No of Years*Period Per Year=3*2) Coupon Rate Semiannual Coupon Rate (Copon Rate/Period Per Year=5.4%/2) Coupon (Face Value*Semiannual Coupon Rate=$100*2.70%) Present Value Maturity Value 11 12 5.40% 2.70% $2.70 pmt 13 14 15 PV FV $99.46 $100.00 16 17 Formula Semi Annual Yield to Maturity =RATE(D8, D12,-D14,D15) 2.80% 18 19 =C18*2 20 21 Annual Yield to Maturity = Semi Annual YTM*2 Annual Yield to Maturity 5.60% 22

A B D E 22 23 b) 24 25 26 27 28 $100.00 2 2 4 29 Semi Annual Yield to Call using Excel Formula = Rate(nper,PMT,-PV,FV) Where, Face Value / Par Value Period Per Year (Semi-annual) No of Years after which bond can be called Period (No of Years*Period Per Year=2*2) Coupon Rate Semiannual Coupon Rate (Copon Rate/Period Per Year=5.4%/2) Coupon (Face Value *Semiannual Coupon Rate=$100*2.70%) Present Value Maturity Value / Callable Value nper 30 31 32 33 34 5.40% 2.70% $2.70 pmt 35 PV FV $99.46 $100.00 36 37 38 39 Semi Annual Yield to Call using Excel Formula Formula Semi Annual Yield to Maturity = Rate(nper,pmt,-PV,FV) =RATE(D29,D33,-D35,D36) 2.84% 40 =C40*2 41 42 43 44 Annual Yield to Call = Semi Annual YTC*2 Annual Yield to Call 5.69% 45 c) 46 Yield to worst = Lower Yield between Yield to Maturity and Yield to Call I= 5.60% 47