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Bond Valuation: Yield to Maturity and Yield to Call

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Assume that you purchased an 8 percent, 20 year, $1,000 par, semiannual payment bond priced at $1,012.50 when it has 12 years remaining until maturity.

Compute:
a) Its promised yield to maturity.
b) Its yield to call if the bond is callable in the three years with an 8 percent premium.

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Solution Preview

Assume that you purchased an 8 percent, 20 year, $1,000 par, semi-annual payment bond priced at $1,012.50 when it has 12 years remaining until maturity.

An attached Word document is provided which contains proper formatting for parts a) and b). As well, some parts of the question can only be viewed in this attached document.

Compute: a) Its promised yield to maturity
We can find the yield to maturity by replacing the information given into the equation and calculate for the yield to maturity.

Where B is the current price
- C is the coupon ...

Solution Summary

This solution is comprised of a detailed explanation showing how to compute promised yield to maturity and yield to call when given the callable time and premium percentage. This has all been completed in about 390 words and includes calculations. A Word document is also attached and contains part of the solution and the formulas are properly formatted.

$2.19
Similar Posting

Spreedsheet Problem - Bonds and Stocks

7-8 Bond yields:
A 10-year, 12 percent semiannual coupon bond, with a par value of $1,000, may be called in 4 years at a call price of $1,060. The bond sells for $1,100. (Assume that the bond has just been issued.)
a. What is the bond's yield to maturity?
b. What is the bond's current yield?
c. What is the bond's capital gain or loss yield?
d. What is the bond's yield to call?

7-22 Bond Valuation
Rework Problem 7-8 using a spreadsheet model. After completeing parts a through d, answer the following related questions.
e. How would the price of the bond be affected by changing interest rates? Hint: Conduct a sensitivity analysis of price to change in the yield to maturity, which is also the going market interest rate of interest falls below the coupon rate. That is an oversimplification, but assume it anyway for purposes of this problem.)

f. Now assume that the date is 10/25/2002. Assume further that our 12 percent, 10-year bond was issued on 7/01/2002, is callable on 7/01/2006 at $1,060, will mature on 6/30/2012, pays interest semiannually (January 1 and July 1), and sells for $1,100. Use your spreadsheet to find (1) the bond's yield to maturity and (2) its yield to call.

I need help with problem set 7-8 questions a through d in excel and problem set 7-22 e and f. No need to re-write the questions. Just show Question "a", Question "b"...Question "f" with excel.

Thanks.

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