Blanche Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,130.35. However, Blanche Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Blanche Inc.'s bonds?

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Business

Charity Gilmore

22 March, 12:58

Blanche Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,130.35. However, Blanche Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Blanche Inc.'s bonds?

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Kayden Salinas · Answer 1

Answer:YTM = [Interest + (face value - price) / years to maturity ] / [ (face value + price) / 2] = [90 + (1000 - 1130.35) / 18 ] / [ (1000 + 1130.35) / 2] = [90 + (-130.35 / 18) ] / [2130.35/2] = [90 - 7.242 ] / 1065.175 = 82.758 / 1065.175 =.0777 or 7.77% YTC = [90 + (1060 - 1130.35) / 8] / [ (1060+1130.35) / 2] = [90 + ...

Explanation:The best estimate for the remaining term is 18 years (because the company would not call the bonds).

The coupon rate to issue a bond at par is 8.88% (the current yield to maturity).