Share
Explore BrainMass

# Bond Price and Yield to Call of Bonds

1) Consider a bond with a par value of \$1,000. The coupon is paid semi-annually and the market interest rate (effective interest rate) is 10 percent. How much would you pay for the bond if:
a) The coupon rate is 8% and the remaining time to maturity is 20 years?
b) The coupon rate is 12% and the remaining time to maturity is 15 years?

2) A 20-year maturity 9% coupon bond paying coupons semiannually is callable in 5 years at a call price of \$1,060. The bond currently sells at a yield to maturity of 7%. What is the yield to call?

#### Solution Preview

1) Consider a bond with a par value of \$1,000. The coupon is paid semi-annually and the market interest rate (effective interest rate) is 10 percent. How much would you pay for the bond if:
a) The coupon rate is 8% and the remaining time to maturity is 20 years?
b) The coupon rate is 12% and the remaining time to maturity is 15 years?

a) We need to calculate how much the bonds have been issued by using the formula as follows: -

where B is the bond price
C is the coupon payment
r is the market interest rate
n is the period
...

#### Solution Summary

This solution is comprised of a detailed explanation to calculate bond price and yield to call of bonds.

\$2.19