Build a Model Chapter: 5 Problem: 24 A30-year, 7% quarterly coupon bond with a par value of $1,000 may be called in10 years at a call price of $1,100. The bond sells for $1,200.(Assume that the bond has just been issued.) Basic Input Data: Years to maturity: 30 Periods per year: 4 Periods to maturity: ?(Provide formula used) Coupon rate: 7% Par value: $1,000 Periodic payment: ?(Provide formula used) Current price $1,200 Call price: $1,100 Years till callable: 10 Periods till callable: ?(Provide formula used) a. What is the bond's yield to maturity? Peridodic YTM=?(Provide formula used) Annualized Nominal YTM=?(Provide formula used) Hint: This is a nominal rate, not the effective rate. Nominal rates are generally quoted. b. What is the bond's current yield? Current yield =?(Provide formula used)?(Provide formula used) Hint: Write formula in words. Current yield =?(Provide formula used)???(Provide formula used) Hint: Cell formulas should refer to Input Section Current yield =?(Provide formula used)(Answer) c. What is the bond's capital gain or loss yield? Cap. Gainloss yield =?(Provide formula used)-?(Provide formula used) Hint: Write formula in words. Cap. Gainloss yield =?(Provide formula used)-?(Provide formula used) Hint: Cell formulas should refer to Input Section Cap. Gainloss yield =?(Provide formula used)(Answer) Note that this isan economic loss, not a loss for tax purposes. d. What is the bond's yield to call? Here we can again use the Rate function, but with data related to the call. Peridodic YTC=?(Provide formula used) Annualized Nominal YTC=?(Provide formula used) This is a nominal rate, not the effective rate. Nominal rates are generally quoted. The YTCis lower than the YTM because if the bond is called, the buyer will lose the difference between the call price and the current price in just 9 years, and that loss will offset much of the interest imcome. Note too that the bond is likely tobe called and replaced, hence that the YTC will probably be earned.