It is now January 1, 2021, and you are considering the purchase of an outstanding bond...

 

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It is now January 1, 2021, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019. It has an 8.5% annual coupon and had a 30-year original maturity. (It matures on December 31, 2048.) There is 5 years of call protection (until December 31, 2023), after which time it can be called at 108-that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 116.57% of par, or $1,165.70. a. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % b. If you bought this bond, which return would you actually earn? NPER 1 28 NPER 2 3 CR 0.085 PMT 85 FV CP 1000 1080 PV 1165.7 YTM =RATE(B85,B88,-B91,B89) YTC =RATE(B86,B88,-B91,B90) It is now January 1, 2021, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019. It has an 8.5% annual coupon and had a 30-year original maturity. (It matures on December 31, 2048.) There is 5 years of call protection (until December 31, 2023), after which time it can be called at 108-that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 116.57% of par, or $1,165.70. a. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. % What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places. % b. If you bought this bond, which return would you actually earn? NPER 1 28 NPER 2 3 CR 0.085 PMT 85 FV CP 1000 1080 PV 1165.7 YTM =RATE(B85,B88,-B91,B89) YTC =RATE(B86,B88,-B91,B90)

Answer rating: 100% (QA)

a To calculate the yield to maturity YTM and yield to call YTC we can use the RATE function in Excel ... View the full answer