Question

Meacham Enterprises' bonds currently sell for $1,280 and have a par value of $1,000. They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 7 years at $1,050. What is their yield to call (YTC)?

Answer 1

YTC=8.76%

Step-by-step explanation:

Current price is $1280

Sales per value is $1000

Annual coupon $135

It will have maturity after 7 years

It recalled it will be $1050 during its

7years.

Check attachment for formulas of YTC

YTC=( (coupon price + (call price - market price)/n))/(call price + market price)/2

Given that

Coupon price =$135

Call price =$1050

Market price is the present price =$1280

N=7years, maturity period

Then,

YTC=( (coupon price + (call price - market price)/n))/(call price + market price)/2

YTC=( (135 + (1050 - 1280)/7))/(1050+ 1280)/2

YTC=( 135-32.86)/1165

YTC=102.14/1166

YTC=0.0876

YTC=8.76%

Answer 2

The Yield to Call (YTC)=9.97%

Step-by-step explanation:

YTC=(C+(CP-P)/t)/((CP+P)/2)

Where

C=$135

CP=$1,050

P=$1,280

t=time in years remaining until the called date

YTC=(135+(1,050-1,280)/7)/((1,050+135)/2)

YTC=$102.14/$1025

YTC=9.97%