Question

Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 6.50% nominalyield to maturity, but it can be called in 6 years at a price of $1,120. What is the bond's nominal yield to call

Answer 1

Number of years to Maturity of the bond = 15 yearsSemi-annual Nominal Coupon = 8.25%Par Value (or) Face Value of the bond = $1,000Nominal Yield to Maturity = 6.50%The bond can be called in 6 years at a price of $1,120Nominal Yield to Call of the bond = ?Calculating Nominal Yield to Call of the bond (YTC):(Using Ms-Excel "Rate" Function):

Calculating Nominal Yield to Call of the bond (YTC):
(Using Ms-Excel "Rate" Function):
Number of years to called the bond (Nper)	6*2
Semi-annual interst payment [$1,000 * (8.25%/2)]	-41.25
Present Value of the bond's callable price (PV)	1120
Par Value (or) Face (or) Future Value of the bond (FV)	-1000
Yield to Call of the bond (Semi-annually)	2.92%
Yield toCall of the bond (Annually) = 5.84%

Nominal Yield to Call of the bond(YTC)= 5.84%