1 answer

The top two are together Bridge Water Inc. has a bond issue outstanding with a $1,000...

Question:

Bridge Water Inc. has a bond issue outstanding with a $1,000 par value and a maturity of 20 years. The bonds have an annual c

the top two are together

The bonds have an annual coupon rate of 6.0% with quarterly coupon payments. The current market price for the bonds is $895.
Bridge Water Inc. has a bond issue outstanding with a $1,000 par value and a maturity of 20 years. The bonds have an annual coupon rate of 6.0% with quarterly coupon payments. a) What is the quoted annual yield-to-maturity for the bonds? b) What is the quoted annual yield-to-call for the bonds?
The bonds have an annual coupon rate of 6.0% with quarterly coupon payments. The current market price for the bonds is $895. The bonds may be called in 3 years for 120% of par.

Answers

YTM = [Coupon Amount+ (Par value- Price current)/period]/(Par value+Current price)/2

Coupon amount =1000*6%*3/12 i.e.15

Period =20*12/3 i.e. 80period

YTM =[15+(1000-895/80]/(1000+895)/2

= 16.3125/947.50 i.e.1.7216% quarterly or 6.886%p.a.

YTC = [Coupon Amount+ (Call value- Price current)/period]/(Call value+Current price)/2

Coupon amount =1000*6%*3/12 i.e.15

Period i.e. number of year to call =3*12/3 i.e. 12period

Call value =1000*120% i.e.1200

YTM =[15+(1200-895/12]/(1200+895)/2

= 40.4167/1047.50 i.e.3.858% quarterly or 15.433%p.a.

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