Question

assume that you purchased an 10%, 20-year, $1,000 par, semiannual payment bond priced at $1,015.00 when it has 12 years remaining until maturity. compute: its promised yield to maturity? do not round intermediate calculations. round your answer to two decimal places. % annually its yield to call if the bond is callable in four years with a 12% premium? do not round intermediate calculations. round your answer to two decimal places. % annually

Answer 1

The promised yield to maturity of the bond is 5.51% annually, and its yield to call if callable in four years with a 12% premium is 11.18% annually.

Step-by-step explanation:

The promised yield to maturity of the bond can be calculated using the formula:

YTM = (Annual Coupon Payment + (Face Value - Bond Price) / Number of Years) / ((Face Value + Bond Price) / 2)

Substituting the given values:

YTM = (50 + (1000 - 1015) / 20) / ((1000 + 1015) / 2) = 0.055093 = 5.51% annually

The yield to call of the bond if it is callable in four years with a 12% premium can be calculated using the formula:

YTC = (Annual Coupon Payment + (Face Value - Bond Price + (Premium / Years to Call)) / Number of Years) / ((Face Value + Bond Price) / 2)

Substituting the given values:

YTC = (50 + (1000 - 1015 + (120 / 4)) / 20) / ((1000 + 1015) / 2) = 0.111849 = 11.18% annually