@@travisbradfield1311 It fairly standard convention in the High Yield bond market. The first call option for the issuer to redeem the bonds at a set price is typically set at 50% of the coupon declining ratably towards par as the bond nears maturity. The second call price is typically half again (ie. 25% of the coupon) and the third half again, or possibly par (depending on the term and initial coupon).
Getting crazy answers with this yield to call: Corporate Bond Annual coupon = 4% Frequency = semi-annual Current Price per 100 of par = 91 Call Price schedule after one year = 101.25 The work book comes out with r = 0.0762 x 2 = 0.1512 if the bond is called after one year. My calculator is coming up with a completely different number. If anyone can explain how to get this number to me like I am 5 years old I would be grateful!
Use the Time Value of Money with the following inputs: FV = 101.25 PV = - 91 PMT = 2 N = 2 Now, press CPT followed by I/Y and you should see a yield of 7.62 (quoted for a 6-month period), which you need to multiply by 2.
First call price would more likely be 103 (ie. half the coupon)
Thanks for that insight
Hi, why is that?
@@travisbradfield1311 It fairly standard convention in the High Yield bond market. The first call option for the issuer to redeem the bonds at a set price is typically set at 50% of the coupon declining ratably towards par as the bond nears maturity. The second call price is typically half again (ie. 25% of the coupon) and the third half again, or possibly par (depending on the term and initial coupon).
@@jameshesketh5590 Cheers thanks, James! Makes sense. Happy to learn something new thanks
Getting crazy answers with this yield to call:
Corporate Bond
Annual coupon = 4%
Frequency = semi-annual
Current Price per 100 of par = 91
Call Price schedule after one year = 101.25
The work book comes out with r = 0.0762 x 2 = 0.1512 if the bond is called after one year.
My calculator is coming up with a completely different number.
If anyone can explain how to get this number to me like I am 5 years old I would be grateful!
Use the Time Value of Money with the following inputs:
FV = 101.25
PV = - 91
PMT = 2
N = 2
Now, press CPT followed by I/Y and you should see a yield of 7.62 (quoted for a 6-month period), which you need to multiply by 2.