This document provides an overview of callable bonds and how to calculate the purchase price of a callable bond to achieve a desired yield. It discusses how the calculation depends on whether the yield rate is greater than or less than the coupon rate, and how to determine the lowest price when there are multiple possible call dates at different redemption prices. It then works through examples of calculating purchase prices for callable bonds with different terms and conditions to yield specific rates.
This document provides an overview of callable bonds and how to calculate the purchase price of a callable bond to achieve a desired yield. It discusses how the calculation depends on whether the yield rate is greater than or less than the coupon rate, and how to determine the lowest price when there are multiple possible call dates at different redemption prices. It then works through examples of calculating purchase prices for callable bonds with different terms and conditions to yield specific rates.
This document provides an overview of callable bonds and how to calculate the purchase price of a callable bond to achieve a desired yield. It discusses how the calculation depends on whether the yield rate is greater than or less than the coupon rate, and how to determine the lowest price when there are multiple possible call dates at different redemption prices. It then works through examples of calculating purchase prices for callable bonds with different terms and conditions to yield specific rates.
Callable bonds allow the issuer to pay off the loan (redeem the bond) prior to the maturity date, Problem is presented with respect to the calculation of the purchase price, since the term of the bond is not certain. The investor will pay the price that will guarantee him his desired yield regardless of the call date. In determining the price, he must assume that the issuer of the bond will exercise his call option to the disadvantage of the investor. Ifthe yield rate is greater than the coupon rate or , the investor must calculate using the latest possible call date. The ABC Corporation issues a 20-year, P1 000 bond with coupons at . The bond can be called, at par, after 15 years. Find the purchase price to yield 13% compounded semiannually. Given: F = We must calculate the two r = purchase prices that correspond C = to the two possible redemption i = dates. If the yield rate is less than the coupon rate or , the investor must calculate using the earliest possible call date. The ABC Corporation issues a 20-year, P1 000 bond with coupons at . The bond can be called, at par, after 15 years. Find the purchase price to yield 11% compounded semiannually. Given: F = We must calculate the two r = purchase prices that correspond C = to the two possible redemption i = dates. The investor can determine all possible purchase prices corresponding to his desired yield, and then pay the lowest of them. The ABC Corporation issues a 20-year, P1 000 bond with coupons at . The bond can be called, at P1 050, after 15 years, otherwise, the bond will mature at par in 20 years. Find the purchase price to yield 11% compounded semiannually. Given: F = We must calculate all possible r = purchase prices that correspond to the possible redemption C = dates. i = A P5,000 callable bond pays interest at and matures at par in 20 years. It may be called at the end of years 10 to 15 (inclusive) for P5,200. Find the price to yield at least until redemption.