Question

Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,045. What is the bond's nominal yield to call

Answer 1

4.40

Step-by-step explanation:

For the nature of the Yield to Call and Yield to maturity

You can eiher solve with excel, a financial calculation or with approximation method

This will be the formula for approximation method

`YTM = (PTM + (C-F)/(n ))/((PTM+F)/(2))`

PTM= 41.25 (1,000 x 8.25 = 82.5 annual interest divide by 2 as there are semiannual payment)

C= 1045 This is the value of the called bond

F= 1000 The face value of the bond

n= 12 (6 years 2 payment per year)

We plug this into the formula and solve

`YTM = (C + (C-P)/(n ))/((C+P)/(2))`

partiel result of the upper part: 45

partial result, divisor: 1022.5

quotient 4.4009780%