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# A 10-year corporate bond issued January 1, 1992 and sold to

### Resolved Question:

A 10-year corporate bond issued January 1, 1992 and sold to investors at par (\$1,000) with a 10 percent coupon rate is called on January 1, 1995 at par plus one year’s coupon income. At time of call prevailing rates on comparable securities were 8 percent. If the bond’s holder reinvested the call price at 8 percent for 7 years, what is his 10-year holding-period yield?
Submitted: 1 month ago.
Category: Single Problem
Expert:  MyVirtualCPA replied 1 month ago.
Thank you for your question, and thanks for using JustAnswer.com. Below see the answer to your question. Please let me know if you have any further questions or need clarifications. Thanks, XXXXX XXXXX don't forget to rate as "excellent" so that I may receive credit for assisting you today.

3

\$1,000 = { [ å \$100 (1.10)t-1 ][(1.08)7] + [\$1100][(1.08) 7] } / (1 + h)10

t=1

\$1,000 = { \$2,452.49 } / (1 + h) 10

h = 9.39%

If the security had not been called and if it were held to maturity, the investor would have had a 10% yield. Because of the call the effective yield would have been only 9.39%.

Customer: replied 1 month ago.
the answer was taken exactly the same from another website. I need more detailed answer that explain how to answer the question.
Customer: replied 1 month ago.

I need to know how to figure out the answer even if by using the financial calculator !!! please let me know if u can do it or not

thanks

Customer: replied 1 month ago.

I need to know how to figure out the answer even if by using the financial calculator !!! please let me know if u can do it or not

thanks

Customer: replied 1 month ago.

Customer: replied 1 month ago.

Customer: replied 1 month ago.
The answer was copied exactly from another website and doesn't has enough details
Expert:  F. Naz replied 1 month ago.
Have a nice day

Customer: replied 1 month ago.

Expert:  F. Naz replied 1 month ago.

Customer: replied 1 month ago.

thanks for your effort, but unfortunately the answer is wrong its 9.39 %, i just want to know how to get this number

3

\$1,000 = { [ å \$100 (1.10)t-1 ][(1.08)7] + [\$1100][(1.08) 7] } / (1 + h)10

t=1

\$1,000 = { \$2,452.49 } / (1 + h) 10

h = 9.39%

if you know how to get the 9.39%, please let me know

Customer: replied 1 month ago.
Expert:  F. Naz replied 1 month ago.
The above method is calculating bond yield using the trial and error method, while I have used the excel sheet therefore the answer given by me seems to be more accurate, you can see the example I have used for simple YTM, on excel sheet with 3 years maturity and coupon rate of 10% with current market price of \$1050. The formula is showing 8.12%, while the excel sheet is showing 8.06%, moreover it seems that in above formula the amount of face value of \$1000 has been taken in the 10th year, while it should be 1100, thanks.

F. Naz, B.Com
Category: Single Problem
Satisfied Customers: 3834
Experience: Have completed B.Com and CA Finalist
Expert:  F. Naz replied 1 month ago.
Sorry the revisd sheet as follows

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