# Bonds: current yield, yield to call, price

1. A newly-issued corporate bond has 20 years to maturity. The bond has a coupon rate of 8 percent and pays interest semiannually. Also, the bond is callable in 6 years at a call price equal to 115 percent of par value. The par value of the bonds is $1,000. The yield to maturity is 7 percent.

a. What is the bond's price today ?

b. What is the bond's current yield ?

c. What is the bond's yield to call ?

d. What will be the bond's price one year from today?

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#### Solution Preview

1. A newly-issued corporate bond has 20 years to maturity. The bond has a coupon rate of 8 percent and pays interest semiannually. Also, the bond is callable in 6 years at a call price equal to 115 percent of par value. The par value of the bonds is $1,000. The yield to maturity is 7 percent.

a. What is the bond's price today ?

Bond Price:

Calculating Price of bond

To calculate the price of the bond we need to calculate / read from tables the values of

PVIF= Present Value Interest Factor

PVIFA= Present Value Interest Factor for an Annuity

Price of bond= PVIF * Redemption value + PVIFA * interest payment per period

PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%

PVIF( n, r%)= =1/(1+r%)^n

Data

No of years to maturity= 20

Coupon rate= 8.00%

Face value= $1,000

Frequency = S Semi ...

#### Solution Summary

The solution calculates price today, current yield, yield to call and price one year from today for a corporate bond