Question

An analyst observes a GUI & Co 6.25%, 5 year semi-annual pay bond trading at 104.764% of par (where par = $1,000). The bond is callable at 102 in 3 years and putable at 99 in 3 years. #3: what are the bond's current yield and yield to maturity? #4. What's the bond's yield to call and put? EC: Do you expect that the bond would be called and/or put? Why or Why not?

Answer 1

3) the bond's current yield = ($31.25 / $1,047.64) x 2 = 5.97%

the bond's YTM = {31.25 + [(1,000 - 1,047.64) / 10]} / [(1,000 + 1,047.64) / 2] = 26.486 / 1,023.82 = 2.587% x 2 = 5.17%

4) bond's YTC = {31.25 + [(1,020 - 1,047.64) / 6]} / [(1,020 + 1,047.64) / 2] = 26.64 / 1,033.82 = 2.577% x 2 = 5.15%

bond's YTP = {31.25 + [(990 - 1,047.64) / 6]} / [(990 + 1,047.64) / 2] = 21.64 / 1,018.82 = 2.124% x 2 = 4.25%

EC) Since the bond's coupon rate is higher than the market rate, it is being sold at a premium. Since the call price is lower than the market price, they will probably be called.