(3) Consider the following bond: Coupon rate = 11% Maturity = 18 years Par value =...

Question

Question

business finance

Answer 1

Answer #1

Yield to call (YTC) is calculated using RATE function in Excel with these inputs :

nper = 13 (13 years to first call date with 1 annual coupon payment each year)

pmt = 1000 * 11% (annual coupon payment = face value * annual coupon rate. This is a positive figure as it is an inflow to the bondholder)

pv = -1169 (current bond price. This is a negative figure as it is an outflow to the buyer of the bond)

fv = 1000 (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 8.77%. This is the YTC.

Answer 2

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