Question

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.)

Answer 1

Answer:

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%

Answer 2

Answer:

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%