If you know about bonds, please help..............?

Question

You paid $820 to buy a 10-year 10% coupon bond that has a call price of $1100 at the end of year 5, what is the yield to call per year? Assume semi-annual coupons and the maturity value of bond is $1000.

a. 6.94%
b. 13.96%
c. 15.42%
d. 16.8%

Thanks for any help you can give!

Please tell why you chose your answer? It doesn't help if I just hav a letter....then I don't know who is correct.

Answer 1

Did you post the same question last night under a different name? If not, then somebody in your class did.

The asnwer is 16.8. You can calculate it in Excel using the RATE function. The formula is: =RATE(10,50,-820,1100)*2

Number of periods is 10 because the bond pays interest semiannually.

The payment is 50 because the coupon is 10% per year per $1000 face amount, or $50 semiannually.

The present value is -820 because that's the price you're paying for the bond.

The future value is 1100 because that's the call price.

You have to multiply the function by 2 because RATE calculates the return by period, not annually, and in your problem there are 2 periods per year.

Answer 2

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Answer 3

A.

Answer 4

C