Example: - BrainMass



Example:

Boeing corporation has just issued a callable(at par) 3 yr, 5% coupon bond with semi-annual coupon payments. The bond can be called at par in two years or anytime thereafter on a coupn payment date. It has a price of 99 dollars. What is the YTM and YTC

The present value formula to be solved is:

[pic]

Using the annuity calculator:

[pic]

So since YTM are quoted as APR’s:

[pic]

YTC:

Timeline:

|Years |0 | |1 | |2 |

|Periods |0 |1 |2 |3 |4 |

| | |  |  |  |  |  |  |  |  |  |

| | |  |  |  |  |  |  |  |  |  |

|Cash Flows | | |$2.5 |$2.5 |$2.5 |$100 |

| | | | | | | | | |+ $2.5 |

The present value formula to be solved is:

[pic]

Using the annuity calculator:

[pic]

Since YTM (and therefore YTC) are quoted as APR’s:

[pic]

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