ABC Inc. has just issued a bond with 9% semi-annual coupon rate and 11.5% yield
ID: 2661259 • Letter: A
Question
ABC Inc. has just issued a bond with 9% semi-annual coupon rate and 11.5% yield to maturity and will mature at 11 years. The bonds are currently selling for $846.15. The bonds may be called in 3 years at $1045. What is the quoted annual yield-to-call for these bonds?
ABC Inc. has just issued a bond with 9% semi-annual coupon rate and 11.5% yield to maturity and will mature at 11 years. The bonds are currently selling for $846.15. The bonds may be called in 3 years at $1045. What is the quoted annual yield-to-call for these bonds?
Explanation / Answer
PMT = 1000*9%*1/2 = 45 (indicates annual interest payment)
PV = 846.15 (indicates the current price of bonds)
FV = 1045 (indicates the future value at the end of 3 Years)
Nper = 11*2 = 22 (indicates the maturity period)
Rate = ? (indicates yield to call)
Yield to Call = Rate(Nper,PMT,PV,FV)*2 = Rate(22,45,-846.15,1045)*2 = 11.74%
Answer is 11.74%.