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Bond Valuation: Yield to Maturity and Yield to Call

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.

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.

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