Tucker Corporation plans to issue new 20-year bonds that are callable after 5 years at a...
Tucker Corporation plans to issue new 20-year bonds that are callable after 5 years at a call premium of $1,050. Suppose this bond has a face value of $1,000 the price is currently $1,000. The coupon rate is 10% which is paid semiannually. Does the yield to maturity exceed the yield to call on this bond?
a. Yes
b. No
c. Not enough information
Homework Answers
Yield to maturity:
The yield to maturity will be same as coupon rate since price is equal to face value
Yield to maturity = 10%
Yield to call:
Number of periods = 5 * 2 = 10
Coupon = (0.1 * 1000) / 2 = 50
Yield to call = 10.78%
Keys to use in a financial calculator: 2nd I/Y 2, FV 1050, PV -1000, PMT 50, N 10, CPT I/Y
NO yield to maturity does not exceed the yield to call on this bond
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