Question
Asked Nov 3, 2019
112 views

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?

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Expert Answer

Step 1

Calculate the yield to maturity as follows:

MS-Excel --> Formulas --> Financials --> Rate

 

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
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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

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Step 2

Therefore, the yield to maturity is 7.14%.

Step 3

Calculate the yield to call as follows:

MS-Excel --&g...

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
help_outline

Image Transcriptionclose

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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Finance

Bonds

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