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    Debentures - Yield to Maturity and Yield to Call

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    6. BCC has issued 8? percent debentures that will mature on July 15, 2030. Assume that interest is paid and compounded annually. If an investor purchased a $1,000 denomination bond for $1,025 on July 15, 2010, determine the bond's yield to maturity. Explain why an investor would be willing to pay $1,025 for a bond that is going to be worth only $1,000 at maturity.

    12. Consider again the BCC 8? percent debentures that mature on July 15, 2030 (see problem 6). Determine the yield to call if the bonds are called on July 15, 2016, at $1,016.55.

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    Solution Preview

    ** Please see the attached Excel File for the complete solution **
    Excel worksheet functions RATE and YIELD have been used to calculate Yield to Maturity and Yield to Call.

    6. BCC has issued 8 percent debentures that will mature on July 15, 2030. Assume that interest is paid and compounded annually. If an investor purchased a $1,000 denomination bond for $1,025 on July 15, 2010, determine the bond's yield to maturity. Explain why an investor would be willing to pay $1,025 for a bond that is going to be worth only $1,000 at maturity.

    Years to maturity= 20 years 15-Jul-10 to 15-Jul-30

    Yield to maturity

    Yield to maturity can be calculated using Excel worksheet function RATE

    Data
    No of years to maturity= 20
    Coupon rate= 8.00% Given
    Face value= $1,000 Given
    Frequency = A = Annual Coupon payments
    Redemption value = Face Value $1,000
    Price of the bond= $1,025.00 Given
    Interest payment per ...

    Solution Summary

    In this solution Excel worksheet functions rate and yield have been used to calculate Yield to Maturity and Yield to Call.

    $2.19