Posted: September 23rd, 2016

Delta Industries has just issued callable ten-year, 8% coupon bonds with semi-annual coupon payments.

Delta Industries has just issued callable ten-year, 8% coupon bonds with semi-annual coupon payments. The bonds can be called at par in four years or anytime thereafter on a coupon payment date. The current bond price is $1000. For an investment today in these bonds (assuming no transaction costs):

a. What is an investor’s Yield to Maturity?
b. What is an investor’s Yield to Call?

Two years ago, Delta Industries issued callable fifteen-year, 7% coupon bonds at par value of $1,000 per bond with annual coupon payments. The bonds have just completed their second coupon payment. The bonds can be called at par five years from the date of issue or anytime thereafter on a coupon payment date. It has a current price of $1100. For an investment today in one of these bonds (assuming $15 in transaction costs):

c. What is an investor’s Yield to Maturity?
d. What is an investor’s Yield to Call?