Suppose Costco Corp. issued a 15 year bond callable in 3 years at a call price...
Suppose Costco Corp. issued a 15 year bond callable in 3 years at a call price of 1,160; the bond has annual payments of 8% of its par value of $1,000. Current bond price is $930.
a. Find the yield to maturity.
b. Find the yield to call.
c. Do you think the issuer is likely to call the bond in 3 years? Why or why not?
Homework Answers
a. Find the yield to maturity.
=RATE(15,8%*1000,-930,1000)=8.861%
b. Find the yield to call.
=RATE(3,8%*1000,-930,1160)=15.678%
c. Do you think the issuer is likely to call the bond in 3
years? Why or why not?
No because YTM is more than YTC
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