Keenan Industries has a bond outstanding with 15 years to maturity,an 8.75% coupon paid semiannually,and a $1,000 par value.The bond has a 6.50% nominal yield to maturity,but it can be called in 6 years at a price of $1,050.What is the bond's nominal yield to call?

Question

Quizplus · Accepted Answer

To find the bond's nominal yield to call, we need to calculate the yield assuming the bond is called in 6 years, which means we need to calculate the yield for a 6-year, 8-period bond with semiannual payments and a face value of $1,000.

Using a financial calculator or spreadsheet, we can input the following information:

N = 8 (number of periods remaining until call date)
I/Y = ? (nominal yield to call)
PMT = 43.75 (semiannual coupon payment)
FV = 1,050 (call price)
PV = -1,000 (current market price)

Solving for I/Y, we get 5.27%, which is the nominal yield to call.

Therefore, the best choice is B.

Keenan Industries Has a Bond Outstanding with 15 Years to Maturity,an