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Tyson, Inc
Tyson, Inc. issued a 20-year bond which is callable in 13 years. It has a coupon rate of 8.25% payable semiannually, has a call premium of $120, and is currently selling for $918. What is the yield to call? (The face value of the bond is $1000.)
a) 9.35%
b) 9.86%
c) 9.15%
d) 9.07%
Expert Solution
We can calculate the yield to call by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = yield to call (semiannual)
Nper = 13*2 = 26 periods (semiannual)
Pmt = Coupon payment = $1,000*8.25%/2 = $41.25
PV = $918
FV = Call price = $1,000+$120 = $1,120
Substituting the values in formula:
= rate(26,41.25,-918,1120)
= 4.93%
Yield to call = Rate * 2
= 4.93% * 2
= 9.86%
Hence, the correct option is b) 9.86%
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