Math Problem Statement
A 6.75 percent coupon bond with 13 years left to maturity can be called in two years. The call premium is one year of coupon payments. It is offered for sale at $919.75. What is the yield to call of the bond? Assume interest payments are paid semi-annually and par value is $1,000.
Solution
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Math Problem Analysis
Mathematical Concepts
Bond Yield Calculation
Time Value of Money
Present Value of Cash Flows
Formulas
Semi-annual Coupon Payment = (Coupon Rate × Par Value) / 2
Call Price = Par Value + Call Premium
Present Value = ∑ (Cash Flow / (1 + r)^t)
Yield to Call (YTC) ≈ r
Theorems
Discounted Cash Flow Analysis
Suitable Grade Level
College Level (Finance/Economics)
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