question archive I need an accurate and well-explained answer to this question
I need an accurate and well-explained answer to this question
Subject:FinancePrice:2.86 Bought8
I need an accurate and well-explained answer to this question. pls help 5 years ago, you purchased a 16-years, 9% coupon paying bond, a face value of $1,000, and a YTM of 9%. The YTM on the bond today is 8%. The bond is callable after 6 years (from today) at a call price of $1,025. What is the market value of the bond? What is the yield to call, current yield, and the capital gain yield on the bond? (Assume annual coupon payments).
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Face Value =1000
Coupon =Coupon Rate*Face Value =9%*1000 =90
Number of Years remaining =16-5 =11 years
Current YTM =8%
Market Value of the bond or
Price today =Coupon*((1-(1+r)^-n)/r)+Par value/(1+r)^n =90*((1-(1+8%)^-11)/8%)+1000/(1+8%)^11 =1071.3896 or 1071.39
Call Price =1025
Number of Years of callable bond =6
Yield To call using financial calculator
N=6;PMT=90;PV=-1071.3896;FV=1025;CPT I/Y =7.81%
Current Yield =Coupon/Price =90/1071.3896 =8.40%
Capital Gain Yield =YTM -Current Yield =8%-8.840% =-0.40%
