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23 March, 16:19

1. Atlantis Fisheries issues zero coupon bonds on the market at a price of $453 per bond. These are callable in 5 years at a call price of $620. Using semiannual compounding, what is the yield to call for these bonds?

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  1. 23 March, 19:07
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    Yield to call is 6.23%

    Explanation:

    The Actual rate of return that a bond has until the call of the bond is called yield to call. Zero coupon bond does not offer any coupon payment.

    Yield to call = [ (CP - MV) / n ] / [ (CP + MV) / 2 ]

    CP = Call price = $620

    MV = Market Value = $453

    n = number of years to call = 5 years

    Yield to call = [ (620 - 453) / 5 ] / [ (620 + 453) / 2 ]

    Yield to call = 33.4 / 536.5 = 0.0623 = 6.23%
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