Pricing of bonds, Yield to maturity, Yield to call

Problem 1: You intend to purchase an 18-year, $1,000 face value bond that has coupon rate of 11% pays semiannually. If you expect to earn a 9.5 percent simple rate of return on this bond, how much should you be willing to pay for this bond immediately before it makes its first coupon payment?

Problem 2: Laser Industries has just issued callable twelve-year, 6% coupon bonds with semi-annual coupon payments. The bonds can be called at 103 in four years or anytime thereafter on a coupon payment date. The current bond price is 101. For an investment today in these bonds (assuming no transaction costs):

a. What is an investor's Yield to Maturity?
b. What is an investor's Yield to Call?

Solution Preview

Please refer attached file for better clarity of formulas and tables.
Solution:
Problem 1

Number of coupon payments=n= 36
Coupon payment=C=1000*11%/2=55
Required rate of return=r=9.5%/2=4.75%
Maturity Amount=M=$1,000
It is equivalent to the situation that coupon payments are made at the beginning of period.
PV of all coupon payment=(C/r*(1-1/(1+r)^n))*(1+r)= 984.7145284
PV of maturity amount=(M/(1+r)^n)*(1+r)=197.0647255
PV of all cash flows=1181.779254
Maximum Price of bond=PV of all cash ...

Solution Summary

There are two problems. Solution to first problem depicts the steps to estimate the value of a coupon paying bond. Solution to second problem explains the methodology to calculate YTC and YTM.

7-8 Bond yields: A 10-year, 12 percent semiannual coupon bond... be called in 4 years at a call price of $1,060 ... been issued.) a. What is the bond's yield to maturity...

... 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 ...

... one of these bonds because it is cheaper than the price that I ... detailed explanation and calculation to compute Yield to Call and Yield to maturity of bonds. ...

... b. What is an investor's Yield to Call? ... The current bond price is 99. For an investment today in these bonds (assuming no transaction costs): ...

...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? ...

... B9. (Yield to call) Samsung has a bond that cannot be called today but can be called in four years at a call price of $1,080. The bond has a remaining maturity...

Bond Yields-yield to maturity, yield to call, current yield; value of stock. ... The bond can be called in 4 yrs at a price of $1,060, and it now sells for $1100. ...

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 ...