Question

A bond has a $1,000 par value, nine years to maturity, and pays a coupon of 5.25% per year, semiannually. The bond is callable in three years at 115% of its par value. If the bond’s yield to maturity is 5.32% per year, what is its yield to call?

Please show work. Or explain how to get answer through the calculator.


A) 9.08%


B) 9.24%


C) 9.86%


D) 9.62%


E) 8.96%

Answer 1

C) 9.86%

Explanation:

Given that:

Par value of the bond = $1000

Coupon rate = 5.25%

Years of maturity = 9

years to call = 3

price to call = 115% * 1000 = 1150

YTM of the bond = 0.0532

Using Excel formula:

The current price of the bond = P-V(0.0532/2, 9*2, 0.0525*1000/2, 1000)

= $995.04

The yield to call = 2 * RATE( 3*2, 0.0525*1000/2, 995.04, 1150)

The yield to calll = 9.86%