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7. Regal Health Plans issued a 12 percent annual coupon bond with a $1,000 par value a few years ago. The bond now has ten years remaining to maturity and sells for $1,100. The bond has a call provision that allows Regal to call the bond in four years at a price of $1,060

What is the bond’s yield to maturity? Hint: Beware of superfluous information – answer the question that is being asked.

Choice: 9.00%

Choice: 9.87%

Choice: 10.35%

Choice: 11.28%

Respuesta :

Answer:

a)10.35% b) 10.13%

the b. What is the bond's yield to call?

Explanation:

a)K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

                  k=1

                 K =10

1100 =∑ [(12*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^10

                  k=1

yield to maturity% = 10.35

b) K = Time to call

Bond Price =∑ [(Annual Coupon)/(1 + YTC)^k]     +   Call Price/(1 + YTC)^Time to call

                  k=1

                 K =4

1100 =∑ [(12*1000/100)/(1 + YTC/100)^k]     +   1060/(1 + YTC/100)^4

                  k=1

Yield to call % = 10.13

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