1. Atlantis Fisheries issues zero coupon bonds on the market at a price of $453 per bond. These are callable in 5 years at a call price of $620. Using semiannual compounding, what is the yield to call for these bonds?

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26 December, 08:02

1. Atlantis Fisheries issues zero coupon bonds on the market at a price of $453 per bond. These are callable in 5 years at a call price of $620. Using semiannual compounding, what is the yield to call for these bonds?

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Twix · Answer 1

Yield to call is 6.23%

Explanation:

The Actual rate of return that a bond has until the call of the bond is called yield to call. Zero coupon bond does not offer any coupon payment.

Yield to call = [ (CP - MV) / n ] / [ (CP + MV) / 2 ]

CP = Call price = $620

MV = Market Value = $453

n = number of years to call = 5 years

Yield to call = [ (620 - 453) / 5 ] / [ (620 + 453) / 2 ]

Yield to call = 33.4 / 536.5 = 0.0623 = 6.23%