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Thatcher Corporation’s bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8% coupon rate, paid semiannually. The price of the bonds is $1,100. The bonds are callable in 5 years at a call price of $1,050. What is their yield to maturity? What is their yield to call?

Answer :

Answer:

1a. 0.057% 1b. 2.15%

Explanation:

C = $1000×0.08 =$80 Annually =$160, F$1000, P =$1100, n=10

YTM = F-P+C/n ÷F+P/2

         1000-1100+160/10÷ 1000+1100/2

          =0.0057/0.057% annually

YTC=1000-1050+160/5÷1000+1050/2

       0.02146/2.15% Annually

         

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