Atlantis Fisheries issues zero coupon bonds on the market at a price of $455 per bond. If these bonds are callable in 5 years at a call price of $509, what is their yield to call? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Question

Business

Tessa

19 March, 12:00

Atlantis Fisheries issues zero coupon bonds on the market at a price of $455 per bond. If these bonds are callable in 5 years at a call price of $509, what is their yield to call? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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Answers (2)

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Demetrius Choi · Answer 1

Yield to call is 2.27% per annual

Explanation:

Present value (PV) : $455

Future value (FV) : $509

Tenor: 5 years

Yield to call (YTC) is the anuual rate in calculation FV from PV

FV = PV * (1 + rate) ^ tenor

509 = 455 * (1 + rate) ^ 5

(1 + rate) ^ 5 = 509 / 455 = 1.1187

1+rate = 1.1187^ (1/5) = 1.0227

-> rate = 0.0227 = 2.27%

Alma Mckee · Answer 2

The yield to call is 2.24%.

Explanation:

To calculate the yield to call, you can use the following formula:

YTC = (C + (CP - P) / t) / ((CP + P) / 2)

YTC = Yield to call

C = Annual Coupon: 0

CP = Call price of the bond: $509

P = Price of the bond: $455

t = time remaining until call date: 5

YTC = (0 + (509-455) / 5) / ((509+455) / 2)

YTC = (54/5) / (964/2)

YTC = 10.8/482

YTC = 0.0224 = 2.24%