Question

Eades Corp. 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 $1,160.35. However, Eades Corp. 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 Eades Corp.’s bonds?

Answer 1

Answer:

The yield to maturity is 7.36%

The yield to call is 6.91%

Explanation:

In calculating the yields, I made use of rate formula in excel,rate(nper,pmt,pv,-fv)

nper is the duration of the bond, which is 18 years for yield to maturity and 8 years for yield to call

pmt is the coupon payable of 9% of face value of $1000

pv is the current price of the bond and it is $1160.35

Fv is the future value of the bond, which is $1000 for yield to maturity and $1060 for yield to call.

Kindly find attached.