A 20-year, 8%annual coupon bond with a par value of $1,000 may be called in 5 years ata call price of $1,040. The bond sells for $1,100. (Assume that the bond has just been issued.) Basic Input Data Years to maturity Perods per year Periods to maturity: Coupon rate: Paralue: Periodic payment: Cument price Call price Years till callable Perods till ca llable $1,000 What is the bond's yield to maturity? 7.05% b. Whatis the bond's current yield? d. What is the bond's yield to cal? 6.31% The YTC is lower than the YTM because the bond is called the buyer will lose the difference between the call price and the current price in just 4 yeas, and that loss will ofset much of the interest income. Note too that the bond is likely to be called and replaced, hence that the YTC will probably be eamed. e. Ignoring the call provision of the bond, de termine its duration. Then determine AND PROVE its modified duration or vola flity, assuming a 1%change in interest rate S Settlement Maturity Coupon Yield Frequency DURATION 1/1/2020 1/1/2040 008 7.05% 1 Make this "1" 11.024 Hint: you should get about 11.024 for duration Using the formula MD = duration 1 + YTM 11.024 1.08 10.21 Proof: Y-T-M from Price from G51.H51151) 655, H55,155) YTM + 5% at YTM YTM -5% Coupon Coupon Coupon 8% Bond 8% Bond 8% Bond Rate" Nper change in price Coupon #DIV/0! Face (should match Price cell F46) For rates, start with the yield to marry from part"," then re-value the bond at() and 0.5 % of it A 20-year, 8%annual coupon bond with a par value of $1,000 may be called in 5 years ata call price of $1,040. The bond sells for $1,100. (Assume that the bond has just been issued.) Basic Input Data Years to maturity Perods per year Periods to maturity: Coupon rate: Paralue: Periodic payment: Cument price Call price Years till callable Perods till ca llable $1,000 What is the bond's yield to maturity? 7.05% b. Whatis the bond's current yield? d. What is the bond's yield to cal? 6.31% The YTC is lower than the YTM because the bond is called the buyer will lose the difference between the call price and the current price in just 4 yeas, and that loss will ofset much of the interest income. Note too that the bond is likely to be called and replaced, hence that the YTC will probably be eamed. e. Ignoring the call provision of the bond, de termine its duration. Then determine AND PROVE its modified duration or vola flity, assuming a 1%change in interest rate S Settlement Maturity Coupon Yield Frequency DURATION 1/1/2020 1/1/2040 008 7.05% 1 Make this "1" 11.024 Hint: you should get about 11.024 for duration Using the formula MD = duration 1 + YTM 11.024 1.08 10.21 Proof: Y-T-M from Price from G51.H51151) 655, H55,155) YTM + 5% at YTM YTM -5% Coupon Coupon Coupon 8% Bond 8% Bond 8% Bond Rate" Nper change in price Coupon #DIV/0! Face (should match Price cell F46) For rates, start with the yield to marry from part"," then re-value the bond at() and 0.5 % of it
