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It is now January 1, 2019, and you are considering the purchase of an outstanding bond that was issued on January 1, 2017. It has an 8.5% annual coupon and had a 15-year original maturity. (It matures on December 31, 2031.) There is 5 years of call protection (until December 31, 2021), after which time it can be called at 108—that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 111.55% of par, or $1,115.50.a. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.b. What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places.

Question

It is now January 1, 2019, and you are considering the purchase of an outstanding bond that was issued on January 1, 2017. It has an 8.5% annual coupon and had a 15-year original maturity. (It matures on December 31, 2031.) There is 5 years of call protection (until December 31, 2021), after which time it can be called at 108—that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 111.55% of par, or $1,115.50.

a. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.

b. What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places.

check_circleAnswer
Step 1

We will find the Yield to maturity, YTM and yield to call, YTC using the RATE function of excel.

Step 2

Part (a)

Please see the white board. The yel...

E
F
115
116 Annual coupon rate
8.5%
1000
117 Par value
F116* F117
118 PMT
85
-1115.5
1000
119 PV
F117
121 FV
- 15-2
=RATE (F122,F11
8,F119,F121)
13
122 Nper
7.11%
123 YTM
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E F 115 116 Annual coupon rate 8.5% 1000 117 Par value F116* F117 118 PMT 85 -1115.5 1000 119 PV F117 121 FV - 15-2 =RATE (F122,F11 8,F119,F121) 13 122 Nper 7.11% 123 YTM

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