Question

Problem 5-8
Yield to Maturity and Call with Semiannual Payments

Thatcher Corporation's bonds will mature in 15 years. The bonds have a face value of $1,000 and an 7.5% coupon rate, paid semiannually. The price of the bonds is $900. The bonds are callable in 5 years at a call price of $1,050. Round your answers to two decimal places.

What is their yield to maturity?
%

What is their yield to call?
%

Answer 1

Yield to maturity					Yield to call
Par value of bonds			1000		Par value of bonds			1000
Issue of bonds			900		Issue of bonds			900
Semi annuall interest			37.5		Semi annuall interest			37.5
Number of period to maturity			30		call price			1050
Number of periods to call			10		Number of periods to call			10
Annuity PVF for 30 periods at 4.35%			16.58029		Annuity PVF for 10 periods at 5.46%			7.5521
PVF for 30th period at 4.35%			0.278757		PVF for 10th period at 5.46%			0.587655
Present value of interest			621.7609		Present value of interest			283.2038
Present value of maturity			278.757		Present value of maturity			617.0378
Price of bonds			900.5179		Price of bonds			900.2415
Annual Yield to maturity = 4.35*2 = 8.70%					Annual Yield to call = 5.46*2=10.92%