YIELD TO MATURITY AND YIELD TO CALL Kempton Enterprises has

YIELD TO MATURITY AND YIELD TO CALL Kempton Enterprises has bonds outstanding with a $1,000 face value and 10 years left until maturity. They have an 10% annual coupon payment, and their current price is $1,185. The bonds may be called in 5 years at 109% of face value (Call price = $1,090). What is the yield to maturity? Round your answer to two decimal places. % What is the yield to call if they are called in 5 years? Round your answer to two decimal places. %

Solution

FV = 1000, PV = -1185, N = 10, PMT = 100

use rate function in Excel

yield to maturity = 7.33%

FV = 1090, PV = -1185, N = 5, PMT = 100

use rate function in Excel

yield to call = 7.05%