Can anyone figure out this bond math?
Can anyone figure out the above bond math? The author of the book didn't outline any assumptions but I'm having trouble understanding why a bond trading at 101 would have a yield greater than the 10% coupon. The call premium might have something to do with the yield calculation but I would love to know how the yields in these two tables are being calculated or what assumption I'm missing since I thought yield was just annual interest / market price.
Did you work out any math around the call price? The bond's current trading price is 101 and call price is 105.
Did some digging myself. Here are the assumptions to get a yield of 11.05%.
Years to maturity = 5 (but doesn't really matter with a call) Years to call = 3 Par value = 1000 Bond Price = 1010 Call Price = 1050 Coupon Rate = 0.10 > 10%
Always assume bonds compound semiannually unless otherwise stated.
Plug those numbers in and you will see the yield to call is 11.05.
Try plugging in other combinations and see how it flows.
Exercitationem nostrum non molestiae voluptas voluptas sit ut. Quisquam asperiores quia voluptatem quae quo veritatis. Voluptatem fugit rem labore voluptatem facilis nesciunt est. Enim hic alias ipsum velit repellendus est.
Quaerat dignissimos rem ratione ex qui sequi. Occaecati vel aut ipsum tempora rerum deserunt. Magni vel asperiores officia cum totam aut. Ab sit ut ipsum non harum quis rem.
Aut ullam soluta rerum et et et voluptates consequuntur. Consequatur aut quia possimus porro tempore nisi esse. Non quia provident animi enim.
Rerum quisquam et et autem est. Perspiciatis corrupti voluptas repudiandae ducimus. Voluptas voluptas quia animi doloribus deserunt quisquam hic. Molestiae eum iure repudiandae ea nesciunt autem. Architecto molestias commodi libero eius impedit debitis. In et voluptatibus ipsa illum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...