Question

1. Atlantis Fisheries issues zero coupon bonds on the market at a price of $453 per bond. These are callable in 5 years at a call price of $620. Using semiannual compounding, what is the yield to call for these bonds?

Answer 1

Yield to call is 6.23%

Step-by-step explanation:

The Actual rate of return that a bond has until the call of the bond is called yield to call. Zero coupon bond does not offer any coupon payment.

Yield to call = [( CP - MV ) / n ] / [ (CP + MV ) / 2 ]

CP = Call price = $620

MV = Market Value = $453

n = number of years to call = 5 years

Yield to call = [( 620 - 453 ) / 5 ] / [ ( 620 + 453 ) / 2 ]

Yield to call = 33.4 / 536.5 = 0.0623 = 6.23%