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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