Question

A corporate bond with a 6% coupon (paid semiannually) has a yield to maturity of 7.5%. The bond matures in 20 years but is callable at $1050 in ten years. The maturity value is par. Calculate the bond’s yield to call. % terms w/o $ sign. (HINT: Find the current price and then solve for YTC.)

Answer 1

Yield to Call = 8.66%

Step-by-step explanation:

The computation of the yield to call is shown below:

First determine Current Price of Bond,

PV = [FV = 1,000, PMT = 30, N = 40, I = 0.075 ÷2]

PV = $845.87

Callable Price = $1,050

Now

Calculating Yield to Call,

I = [PV = -845.87, FV = 1,050, N = 20, PMT = 30]

I = 8.66%

Yield to Call = 8.66%