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2 April, 15:16

Atlantis Fisheries issues zero coupon bonds on the market at a price of $455 per bond. If these bonds are callable in 5 years at a call price of $509, what is their yield to call? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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Answers (2)
  1. 2 April, 16:35
    0
    The yield to call is 2.24%.

    Explanation:

    To calculate the yield to call, you can use the following formula:

    YTC = (C + (CP - P) / t) / ((CP + P) / 2)

    YTC = Yield to call

    C = Annual Coupon: 0

    CP = Call price of the bond: $509

    P = Price of the bond: $455

    t = time remaining until call date: 5

    YTC = (0 + (509-455) / 5) / ((509+455) / 2)

    YTC = (54/5) / (964/2)

    YTC = 10.8/482

    YTC = 0.0224 = 2.24%
  2. 2 April, 18:30
    0
    Yield to call is 2.27% per annual

    Explanation:

    Present value (PV) : $455

    Future value (FV) : $509

    Tenor: 5 years

    Yield to call (YTC) is the anuual rate in calculation FV from PV

    FV = PV * (1 + rate) ^ tenor

    509 = 455 * (1 + rate) ^ 5

    (1 + rate) ^ 5 = 509 / 455 = 1.1187

    1+rate = 1.1187^ (1/5) = 1.0227

    -> rate = 0.0227 = 2.27%
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