Mr. Alert Tucker of Pleasant Valley, Ohio is an investor who is interested in allocating part of his portfolio to investment-grade corporate bonds with 15-year maturity. He recently received two proposals to choose from.
Prudential: A 7% coupon bond that sells for $1,100. Coupon payments are made semiannually.
Morgan Stanley: A 6% coupon bond that sells for $980. Coupon payments are made annually.
A-Calculate each option YTM and CY.
B-If Prudential bond can be called at the end of five years at a call value of 950, calculate YTC.
C-If Morgan Stanley bond can be called at the end of seven years at a call value of 985, calculate YTC.
Answer
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Q#
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Bond
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N
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PMT
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FV
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PV
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I =YTM
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CY
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1.a
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Prudential
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Morgan Stanley
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1.b
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Bond
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N
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PMT
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CV
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PV
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YTC
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Prudential
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1.c
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Bond
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N
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PMT
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CV
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PV
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YTC
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Morgan Stanley
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