Arco Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 7.80% yield to maturity, but it can be called in 6 years at a price of $1,045. What is the bond's yield to call?

Arco Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 7.80% yield to maturity, but it can be called in 6 years at a price of $1,045. What is the bond's 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 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...

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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

Arco Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual
payments, and a $1,000 par value. The bond has a 7.80% yield to maturity, but it can be called in 6 years at a
price of $1,045. What is the bond's yield to call?
Hint: Calculate the bond's price based on the YTM, and then use that price to find the YTC.
Your answer should be between 4.08 and 10.64, rounded to 2 decimal places, with no special characters.

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