A bond has a face value of $1000, a 10% coupon rate and four years to maturity. The bond makes annual interest payments. The bond was selling at $1035. (a) What is the bond 's yield to maturity? (b) If the bond can be called two years from now at a price of $1120, what is its yield-to-call?

A bond has a face value of $1000, a 10% coupon rate and four years to maturity. The bond makes annual interest payments. The bond was selling at $1035. (a) What is the bond 's yield to maturity? (b) If the bond can be called two years from now at a price of $1120, what is its yield-to-call?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 17P: Bond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures in 4...

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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

Activity 3
A bond has a face value of $1000, a 10% coupon rate and four years to maturity.
The bond makes annual interest payments. The bond was selling at $1035.
(a) What is the bond 's yield to maturity?
(b) If the bond can be called two years from now at a price of $1120, what is its
yield-to-call?

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