Answer:
a. Current Yield = 8.7104%
b. Yield to Maturity(YTM) = 7.7525%
c. Yield to Call(YTC) = 7.6331%
Explanation:
Coupon rate = 9.625% semi-annual coupon
Maturity date = May 1, 2028, Current date = November 1, 2020. Maturity = 7.5 years
Bond Price = $1,105
a. Annual Coupon = Coupon rate * Face value
Annual Coupon = 9.625% * $1000
Annual Coupon = $96.25
Current Yield = Annual Coupon / Bond price
Current Yield = $96.25 / $1105
Current Yield = 8.7104%
b. Coupon per period = (Coupon rate / No of coupon payments per year) * Face value
Coupon per period = (9.625% / 2) * $1000
Coupon per period = $48.125
Bond Price = ∑Coupon / (1 + YTM / 2)^period + Par value / (1 + YTM / 2)^period
1105 = $48.125 / (1 + YTM / 2)^1 + $48.125 / (1 + YTM / 2)^2 +...+ $48.125 / (1 + YTM / 2)^15 + $1000 / (1 + YTM / 2)^15
Using the Calculator
SET N = 15, PMT = 48.125 , PV = -1105, FV = 1000
CPT ---> I/Y = 3.8763
YTM = 2 * I/Y
YTM = 2 * 3.8763%
Yield to Maturity(YTM) = 7.7525%
c. Bond Price = ∑Coupon / (1 + YTC / 2)^period + Call value / (1 + YTC / 2)^period
1105 = $48.125 / (1 + YTC / 2)1 + $48.125 / (1 + YTC / 2)2 +...+ $48.125 / (1 + YTC / 2)7 + $1058.25 / (1 + YTC / 2)7
Using the calculator
SET N = 7, PMT = 48.125 , PV = -1105, FV = 1058.25
CPT ---> I/Y = 3.8166
YTC = 2 * I/Y
YTC = 2 * 3.8166%
Yield to Call(YTC) = 7.6331%
