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General Electric has just issued a callable (at par) 10-year, 6% coupon bond with annual coupon payments
General Electric has just issued a callable (at par) 10-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year or anytime there-after on a coupon payment date. It has a price of $102.
a. What is the bond's yield to maturity?
b. What is its yield to call?
c. What is its yield to worst?
Expert Solution
a). We can calculate the yield to maturity by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = Yield to maturity
Nper = 10 periods
Pmt = Coupon payment = $100*6% = $6
PV = $102
FV = $100
Substituting the values in formula:
= rate(10,6,-102,100)
= 5.73%
b). We can calculate the yield to call by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = Yield to call
Nper = 10 periods
Pmt = Coupon payment = $100*6% = $6
PV = $102
FV = Call price = $100
Substituting the values in formula:
= rate(1,6,-102,100)
= 3.92%
c). YTC is the yield to worst because YTC is lower than the YTM so the yield to worst = 3.92%
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