Question

a 10% coupon bond, $1,000 par value, annual payments, 10 years to maturity is callable in 3 years at a call price of $1,100 (call price includes the fee). if the bond is selling today for $975, the yield to call is

Answer 1

The yield to call for the bond is 8.97%.

Step-by-step explanation:

The yield to call can be calculated using the formula:

Yield to call = ((Call Price - Bond Price) / (Bond Price)) * (1 / (Years to Call))

In this case, the bond is selling for $975, the call price is $1,100 (including the fee), and the bond is callable in 3 years with 10 years to maturity.

Using the formula:

Yield to call = (($1,100 - $975) / $975) * (1 / 3)

= 8.97%