Answered: A 30-year maturity, 8% coupon bond…

A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in five years at a call price of $1,100. The bond currently sells at a yield to maturity of 7% (3.5% per half- vear),

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 16P

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Concept explainers

Stock Yields

The stock yield is otherwise known as the dividend yield. The dividend yield is an annual payment of the stock dividends to the holder of a firm’s stock. The dividend yield is a financial ratio to measure the value of dividend payout every year for the relative stock price. The yield of a stock is usually shown in a percentage that discloses the expected future earnings from stock depending on the current stock price in the future. Stock yield will change depending on the market fluctuations and in accordance with the market fluctuations, the dividends will be increased or decreased by the firm.

Question

Yield to call

A 30-year maturity, 8% coupon bond paying
coupons semiannually is callable in five years
at a call price of $1,100. The bond currently
sells at a yield to maturity of 7% (3.5% per half-
year).
Required:
(a) What is the yield to call? (Round your
answer to 2 decimal places. Omit the "%" sign
in your response.)

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