question archive Yield to maturity
Yield to maturity
Subject:FinancePrice:2.87 Bought7
Yield to maturity. A firm's bonds have a maturity of 8 years with a 1000 face value, have an 11% semiannual coupon, are callable in 4 years at $1154, and currently sell at a price of $ 1283.09. What are their nominal yield to maturity and their nominal yield to Call? WHat return should investors expect to earn on these bonds?
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Answer:
| 1 | Face value (FV) | $ 1,000.00 |
| 2 | Coupon rate | 11.00% |
| 3 | Number of compounding periods per year | 2 |
| 1*2/3 | Interest per period (PMT) | $ 55.00 |
| Bond price (PV) | $ -1,283.09 | |
| 4 | Number of years to maturity | 8 |
| 5 = 4*3 | Number of compounding periods till maturity (NPER) | 16 |
| Bond yield to maturity | RATE(NPER,PMT,PV,FV)*2 | |
| Bond yield to maturity | 6.42% |
| 1 | Call price (Here it is FV) | $ 1,154 |
| 2 | Coupon rate | 11.00% |
| 3 | Number of compounding periods per year | 2 |
| 1*2/3 | Interest per period (PMT) | $ 55.00 |
| Bond price (PV) | $ (1,283.09) | |
| 4 | Number of years to call | 4 |
| 5 = 4*3 | Number of compounding periods till call (NPER) | 8 |
| Bond Yield to call | RATE(NPER,PMT,PV,FV)*2 | |
| Bond Yield to call | 6.32% |
