Meacham Enterprises' bonds currently sell for $1,280 and have a par value of $1,000. They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,050. What is their yield to call (YTC) ? a. 6.39%b. 6.72%c. 7.08%d. 7.45%e. 7.82%

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Business

Ashleigh Blackwell

25 March, 04:24

Meacham Enterprises' bonds currently sell for $1,280 and have a par value of $1,000. They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,050. What is their yield to call (YTC) ? a. 6.39%b. 6.72%c. 7.08%d. 7.45%e. 7.82%

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Levi Ho · Answer 1

The answer is d. 7.45%

Explanation:

B = Current Price of the Bonds $1,280

C = Coupon payment paid out annually $135

CP = Call price $1,050.

T = number of years pending until the call date 5 years

Yield to Call Formula = (C/2) * { (1 - (1 + YTC/2) ^-2t) / (YTC/2) } + (CP/1 + YTC/2) ^2t)

$1,280 = ($135/2) * { (1 - (1 + YTC/2) ^-10) / (YTC/2) } + ($1,050 / 1 + YTC/2) ^10) = 7.45%