Suppose a 10-year. 10% semiannual coupon bond with a par value of $1,000 is currently selling for

Question:

Suppose a 10-year. 10% semiannual coupon bond with a par value of $1,000 is currently selling for $1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called alter 5 years for a price of $ 1,050.

(1) What is the bond’s nominal yield to call (YTC)?

(2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?

Sam Strother and Shawna Tibbs are vice presidents of Mutual of Seattle Insurance Company and codirectors of the company’s pension fund management division. An important new client, the North-Western Municipal Alliance, has requested that Mutual of Seattle present an investment seminar to the mayors of the represented cities, and Strother and Tibbs, who will make the actual presentation, have asked you to help them by answering the following questions. Because the Boeing Company operates in one of the league’s cities, you are to work Boeing into the presentation.

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... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...