Bond Yield to Call: 14-yr $1K face-value corp. bond w/ 8%

pee_U_10

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A 14 year $1000 face balue corporate bond has an 8% semiannual coupon and sells for $1075. The bond may be called in 5 years at a call price of $1050. What is the bond's yield to call?

I did FV=1000, PV=1050, PMT=80, N=14, and solved for I/Y and got 7.14. The correct answer is 7.05% I don't understand what I am doing incorrectly.
 
Re: Bond Yield to Call

pee_U_10 said:
A 14 year $1000 face balue corporate bond has an 8% semiannual coupon and sells for $1075. The bond may be called in 5 years at a call price of $1050. What is the bond's yield to call?
I did FV=1000, PV=1050, PMT=80, N=14, and solved for I/Y and got 7.14. The correct answer is 7.05% I don't understand what I am doing incorrectly.
Got no idea what you're doing...
Can you do this one:
A 10 year $1000 face value bond with 10% semiannual coupons is purchased to yield
9% annual compounded semi-annually. What is the purchase price?

I know it's different: just want to see where you're at.
 
Just to let future guests know, I am a novice to this, but a fundamental part of this problem is the term Yield to Call. When doing these,
the call price is the future value
because that is what you are going to get paid when the bond can be called, not the par value at the very end[/spoiler:1e6zv5re]
The present value is what the bond can be sold for right now,
thus 1075[/spoiler:1e6zv5re]
N is the number of payments before the bond can be called
since we have a bond called in 5 years, semiannual= 5 * 2=10[/spoiler:1e6zv5re]
Payment is semiannual
take 8% of $1000, then divide by 2, 80/2=40[/spoiler:1e6zv5re]

Your setup on a financial calc will look like this:
N=10,PMT=40,PV=-1075 (this negative is important),FV=1050[/spoiler:1e6zv5re]
The rate you get is: 3.5229%, why do you multiply this by two?

On the other hand, a Yield to Maturity will look like this:
N=28,Pmt=40,PV=-1075,FV=1000[/spoiler:1e6zv5re]
The rate you get would be: 3.5719%, again why do you multiply by two?

Hope the "spoiler's" help you think about the problem, because I aint (yeah aint) here to give you the answer.
 
What's your point? This thread is over 6 months old :shock:
 
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