Problem 1: You are considering investing in a 10-year bond issued by NewEnergy Inc. This bond has $1000 face value,...

Question

Question

Problem 1:	You are considering investing in a 10-year bond issued by NewEnergy Inc. This bond has $1000 face value, 4% coupon rate.
The bond pays coupons semi-annually and is currently selling at $920. The bond can be called at a $1,040 in 3 years.


1.d. (6 points)	If the bond is called back by the firm at price of $1,040 in three years, what is the yield to call?
N=
FV=
PMT=
PV=
PMT Type=
Periodic Discount Rate=
Yield to Call =

Answer 1

Answer #1

Using excel formula

Problem 1:	You are considering investing in a 10-year bond issued by NewEnergy Inc. This bond has $1000 face value, 4% coupon rate.
The bond pays coupons semi-annually and is currently selling at $920. The bond can be called at a $1,040 in 3 years.

1.d. (6 points)	If the bond is called back by the firm at price of $1,040 in three years, what is the yield to call?
N=	20	(=10*20
FV=	1000
PMT=	20	(=1000*4%/2)
PV=	920
PMT Type=	0	(End of Period)
Periodic Discount Rate=	2.51%	RATE(20,20,-920,1000)
Yield to Call =	5.35%	2*RATE(20,20,-920,1040)

Answer 2

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