Arnot Internationals bonds have a current market price of $1,200 The bonds have an 11 annual coupon payment, a $1,000 face value, and 10 years left until maturity The bonds may be called in 5 years at 109 of face value (call price $1,090) a What is the yield to maturity b What is the yield to call ...

a Find the YTM as follows N 10 PV 1200 PMT 110 FV 1000 IYR YTM 802 b Find the YTC if called in Year ...

Arnot Internationals bonds have a current market price of $1,200. The bonds have an 11% annual coupon

Question:

Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual payment, a $1,000 and 10 years left until maturity. The bonds may be called in 5 years at 109% of (call price = $1,090).
a. What is the yield to maturity?
b. What is the yield to call if they are called in 5 years?
c. Which yield might investors expect to earn on these bonds, and why?
d. The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of in Year 7 they may be called at 107% of and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...