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Social ScienceA corporate bond matures in 14 years. The bond has an 8% semiannual coupon and a par value of $1,000. The bond is callable in five years at a call price of $1,050. The price of the bond today is $1,075. What are the bond’s yield to maturity and yield to call?
A corporate bond matures in 14 years. The bond has an 8% semiannual coupon and a par value of $1,000. The bond is callable in five years at a call price of $1,050. The price of the bond today is $1,075. What are the bond’s yield to maturity and yield to call?
Expert Answer
Calculate the yield to maturity as follows:
MS-Excel --> Formulas --> Financials --> Rate
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2*RATE(14 2,8%/2*1000,-1075, 1000) Function Arguments X RATE Nper 14*2 = 28 Pmt 8%/2* 1000 =40 Pv -1075 = -1075 Fv 1000 =1000 = number Турe =0.035718506 Returns the interest rate per period of a loan or an investment. For example, use 6 % / 4 for quarterly payments at 6% APR. Nper is the total number of payment periods for the loan or investment. Formula result =0.071437013 Cancel Help on this function ок
Therefore, the yield to maturity is 7.14%.
Calculate the yield to call as follows:
MS-Excel --&g...
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2*RATE(5*2,8%/2*1000,-1075,1050) Function Arguments X RATE Nper 5*2 =10 Pmt 8%/2* 1000 =40 = -1075 Pv 1075 Fv 1050 =1050 Туре =number =0.035229042 Returns the interest rate per period of a loan or an investment. For example, use 6% / 4 for quarterly payments at 6% APR Nper is the total number of payment periods for the loan or investment. Formula result 0.070458085 Help on this function ок Cancel
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