The dynamics of bond pricing can often provide trading opportunities for investors that are positioned to take risk. An example would be the pricing of US Steel bonds in 2016. After imported steel tariffs were removed in early 2016, the price of US Steel bonds plunged to reflect the higher credit risk to the company if it were to lose market share to imported steel. We can illustrate many of the concepts in the chapter by analyzing the price movement of the US Steel 7.0% coupon bonds due 2/1/18 as described below.

Describing the bonds

Current Price (2/2/16): $670

Issuer: United States Steel Corporation

Rank: Senior Unsecured

Coupon: 7.00%

Coupon Frequency: Semiannual on Feb. 1 and Aug. 1

Issue Date: 2/1/2008

Maturity Date: 2/1/2018

Callable after 2/1/2013 at $1,050

Bond Ratings:

S&P B

Moodys B2

ANSWER THE FOLLOWING QUESTION: Based on the above information, what is the bonds annualized yield to maturity as of 2/2/16? Show your calculations on Excel.

Crndit Information an af 1/1/16 ICnurme Dlnomhoral