52  A bond that matures in 10 years is callable in three years at a call price of $1,025

52) Computation of Bond's Current Price using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Bond's Current Price = ?

Rate = 7.3%/2 = 3.65%

Nper = 10 years*2 = 20 Periods 

PMT = $1,000*8%/2 = 40

FV = $1,000

Substituting the values in formula:

=-pv(3.65%,20,40,1000)

PV or Bond's Current Price = $1,049.07

So, Bond's Current Price is $1,049.07

The Yield to Call (YTC) is lower than Yield to Maturity (YTM). So, the bond is likely to be called.

53) Computation of YTM of the Bond using Rate Function in Excel:

=rate(nper,pmt,-pv,fv)*2

Here,

Rate = Yield to Maturity = ?

Nper = 12 years*2 = 24 periods

PMT = $1,000*7.5%/2 = $37.50

PV = $1,038

FV = $1,000

Substituting the values in formula:

=rate(24,37.50,-1038,1000)*2

Rate or Yield to Maturity = 7.03%

 Computation of YTC of the Bond using Rate Function in Excel:

=rate(nper,pmt,-pv,fv)*2

Here,

Rate = Yield to Call = ?

Nper = 4 years*2 = 8 periods

PMT = $1,000*7.5%/2 = $37.50

PV = $1,038

FV = $1,045

Substituting the values in formula:

=rate(8,37.50,-1038,1045)*2

Rate or Yield to Call =  7.37%

The bond is not likely to be called as Yield to Call (YTC) is greater than Yield to Maturity (YTM).