Question

YYZ Inc’s bonds currently sells for $1,280 and have a par value of $1,000. They pay a 13.5% semi annual coupon and have a 15-year maturity, but they can be called in 5 years at a 5% premium. What is their yield to call (annual)

Answer 1

To calculate the yield to call for YYZ Inc's bonds, we need to use the formula: (Annual Interest + (Call Price - Current Price) / Years to Call) / ((Call Price + Current Price) / 2).

Step-by-step explanation:

The bond yield to call represents the return an investor would receive if the bonds were called by the issuer at the call date. To calculate the yield to call, we need to use the formula: (Annual Interest + (Call Price - Current Price) / Years to Call) / ((Call Price + Current Price) / 2).

In this case, the annual interest is 13.5% of the par value, the call price is 5% premium over the par value, the current price is $1280, and the years to call is 5.

Using this information, we can calculate the yield to call for YYZ Inc's bonds.