Yield to Maturity and Yield to Call
Arnot International's bonds have a current market price of $1,250. The bonds have an 10% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = 1,090).
In Year 6
In Year 7
In Year 8
In Year 9
Bonds are always called
First three subparts will be answered as per our policies.
1)
Coupon = 10% of Face value = 10% of 1000 = 100
Yield to maturity (YTM) can be calculated by using the approximation formula or by using Excel function IRR.
YTM calculation using approximation formula is shown below.
YTM calculation using excel can be done using IRR function as shown below.
2)
For calculating Yield to call (YTC), same formulae can be used with a minor modificati...
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