Ace Products has a bond issue outstanding with 15 years remaining to maturity, a
ID: 2741420 • Letter: A
Question
Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 7.8% with semiannual payments of $39, and a par value of $1, 000. The price of each bond in the issue is $1, 260.00. The bond issue is callable in 5 years at a call price of $1, 078. What is the bond's current yield? Round your answer to two decimal places. Do not round intermediate calculations. What is the bond's nominal annual yield to maturity (YTM)? Round your answer to two decimal places. Do not round intermediate calculations. What is the bond's nominal annual yield to call (YTC)? Round your answer to two decimal places. Do not round intermediate calculations. Assuming interest rates remain at current levels, will the bond issue be called?Explanation / Answer
YIeld to call is lower than yield to maturity. To gain this benifit, company will exercise the call option.
Face value (FV) $ 1,000.00 Coupon rate 7.80% Number of compounding periods per year 2 Interest per period (PMT) $ 39.00 Bond price (PV) $ (1,260.00) Number of years to maturity 15 Number of compounding periods till maturity (NPER) 30 Bond Yield to maturity RATE(NPER,PMT,PV,FV)* Bond Yield to maturity 5.27% Current yield Bond annual coupons÷Bond price Current yield 6.19%