1.Sadik Inc.'s bonds currently sell for $1,270 and have a par
value of $1,000. They pay a $105 annual
coupon and have a 15-year maturity, but they can be called in 5 years at
$1,100. What is their yield to call
(YTC)?

2.A 25-year, $1,000 par value bond has an 8.5% annual payment
coupon. The bond currently sells for
$900. If the yield to maturity remains
at its current rate, what will the price be 5 years from now?

Thank you for the opportunity to help you with your question!

A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $900. If the yield to maturity remains at its current rate, what will the price be 5 years from now?

First you have to calculate the current yield to maturity. You do this by solving for the RATE function using the following criteria:

Number of Periods = 25 Annual Payment = $85 ($1,000 X 8.5%) Future Value $1,000 Present Value -$875

The RATE calculates to 9.863%

Now calculate the Present Value using this criteria

Future Value $1,000 Number of Periods = 20 (25 - 5) Annual Payment = $85 ($1,000 X 8.5%) RATE = 9.863%

The Present Value calculates to -$882.90

So in five years, the bond will sell for $882.90

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Jul 12th, 2015

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