Question

Jerome Corporation's bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,050. What is the bond's nominal yield to call?

Answer 1

Answer:

5.01%

Explanation:

The bond nominal yield to call is  5.01%

Answer 2

Answer:

5.27%

Explanation:

Step 1

Bond's current price.

Coupon rate 8.75%

YTM 6.50%

Maturity 15

Par value$1,000

Periods/year 2

Determine the bond's price

PMT/period $43.75

N 30

I/YR 3.25%

FV $1,000.00

PV = Price $1,213.55

Step 2

Using the bond current price to find the YTC

Yrs to call 6

Call price $1,050.00

Determine the bond's Yield to call

N 12

PV $1,213.55

PMT $43.75

FV $1,050.00

I/YR 2.64%

Nominal YTC 5.27%

Therefore the bond's nominal yield to call is 5.27%