Question

You own a bond with the following features: face value of $1000, coupon rate of 9% (semiannual coupon), and 30 years to maturity. The bond has a current price of $1100. The bond is callable after ten years with the call price of $1090. What is the yield to call if the bond is called at ten years (state as an APR)

Answer 1

8.12%

Step-by-step explanation:

For computing the yield to call, we have to applied the RATE formula i.e to be shown in the attachment below:

Given that,

Present value = $1,100

Future value or Face value = $1,090

PMT = 1,000 × 9% ÷ 2 = $45

NPER = 10 years × 2 = 20 years

The formula is shown below:

= Rate(NPER;PMT;-PV;FV;type)

The present value come in negative

So, after applying this formula in the spreadsheet, the yield to call is

= 4.06% ×2

= 8.12%