Question

You bought a 1000 par value callable bond right after a coupon payment and paid 918 for it. You held it until it was called for 1100 (prior to maturity). The bond had a coupon rate of 9% payable semi-annually. The nominal yield rate convertible semi-annually was 10%. For how many years did you hold the bond

Answer 1

25 years

Step-by-step explanation:

We first set BA II Plus calculator : C/Y = 2, P/Y = 2

Then, I/Y = 10, PMT= -45(1000*9%/2), FV= -1100, PV=918

CPT No of years = N(I/Y, PMT, -FV, PV) (Semi annual period)

CPT No of years = 49.35 (Semi annual period)

CPT No of years = 49.35/2

CPT No of years = 24.68

CPT No of years = 25 years