Question

it isago basis point that is 2,30% Carent coupon selle al-month liBa =#351+ 2,30%. -3,65 1. (15 points) 3. Calculate the yield to worst on the following bond, which makes semi-annual coupo payment: Coupon rate = 8% Maturity = 20 years Par Value = $1,000 Only call option in 11 years at $1,15 Only put date in 5 years putable at par value. N= The current market price for this bond is $1,080 N=20X2-60 Apv=

Answer 1

Yield to worst is the lowest of yield to maturity (YTM), yield to call (YTC) and yield to put (YTP).

YTM is calculated using RATE function in Excel with these inputs :

nper = 20*2 (20 years to maturity with 2 semiannual coupon payments each year)

pmt = 1000 * 8% / 2 (semiannual coupon payment = face value * annual coupon rate / 2. This is a positive figure as it is an inflow to the bondholder)

pv = -1080 (current bond price. This is a negative figure as it is an outflow to the buyer of the bond)

fv = 1000 (face value of the bond receivable on maturity. This is a positive figure as it is an inflow to the bondholder)

The RATE is calculated to be 3.62%. This is the semiannual YTM. To calculate the annual YTM, we multiply by 2.

YTM is 7.24%

fiRATE(20*2,1000*8%/2,-1080,1000)*2 A1 A. C E F G 7.24%

YTC is calculated using RATE function in Excel with these inputs :

nper = 11*2 (11 years to call with 2 semiannual coupon payments each year)

pmt = 1000 * 8% / 2 (semiannual coupon payment = face value * annual coupon rate / 2. This is a positive figure as it is an inflow to the bondholder)

pv = -1080 (current bond price. This is a negative figure as it is an outflow to the buyer of the bond)

fv = 1150 (call price of the bond receivable on call date. This is a positive figure as it is an inflow to the bondholder)

The RATE is calculated to be 3.90%. This is the semiannual YTC. To calculate the annual YTC, we multiply by 2.

YTC is 7.79%

fi RATE(11 2,1000*8%/2,-1080,1150) *2 A2. A C E F 7.79% 2

YTP is calculated using RATE function in Excel with these inputs :

nper = 5*2 (5 years to put with 2 semiannual coupon payments each year)

pmt = 1000 * 8% / 2 (semiannual coupon payment = face value * annual coupon rate / 2. This is a positive figure as it is an inflow to the bondholder)

pv = -1080 (current bond price. This is a negative figure as it is an outflow to the buyer of the bond)

fv = 1000 (put price of the bond receivable on put date. This is a positive figure as it is an inflow to the bondholder)

The RATE is calculated to be 3.06%. This is the semiannual YTP. To calculate the annual YTP, we multiply by 2.

YTP is 6.12%

fiRATE(5*2,1000*8%/2,-1080,1000)*2 АЗ A. В C Е F 6.12%

The YTP is the lowest of the three yields.

The yield to worst is 6.12%