Question

It is now January 1, 2022, and you are considering the purchase of an outstanding bond that was issued on January 1, 201...


It is now January 1, 2022, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019. It has a 5.25% annual coupon and had a 30-year original maturity. There is 5 years of call protection, after which time it can be called at 105.25 - that is, at 105.25% of par, or $1,052.50. Interest rates have declined since it was issued, and it is now selling at 102.5% of par, or $1,025.00.

What is the Yield to Maturity (YTM)?

What is the Yield to Call (YTC)?

Answer

Bonds are those financial instruments that have fixed income and which also help a company to raise the funds for business operations without compromising the ownership of the company.

Calculation of the Yield to Maturity (YTM) :

Finance homework question answer, step 2, image 1

Formula table:

Finance homework question answer, step 2, image 2

 

 

Calculation of the Yield to Call (YTC):

Finance homework question answer, step 3, image 1

Formula table:

Finance homework question answer, step 3, image 2

Recent Questions