P . . .i . . .i . . .i . . . . . i . . .i+$1000
where P is today's price, i = interest payments and $1,000 is the maturity value. You discount the maturity value and interest payments (an annuity) to the present at the rate that yields present value P. A financial calculator is the simplest approach. Algebraically, you have to solve for the market rate of interest which is the same for the two present values -- PV of the annuity + Pv of the maturity value -- when their sum = $900.
Yield to call is the same with different numbers.
P . . .i . .i . . .i . . . . i . . .i+$1040
The number of periods is different and the maturity value is the call value.
Hi, thanks in advance for any help. I don't know how to solve this problem algebraically or using the financial calculator. I know how to find yield to maturity, however.
The problem:
JP issued 8% bonds with annual interest payments that matures in 2046, but the bonds are callable at $1,040 in 2021, 7 years from today. What is its yield to call if an investor bought a $1,000 bond for $900?
I would prefer if you could show me how to solve it algebraically because I want to learn and understand it. Thanks! Stars for any help!
