A corporate bond which matures in 12 years, pays a 9 percent annual coupon, has a face value of $1,000, and a yield to maturity of 7.5 percent. The bond can first be called four years from now. The call price is $1,050. What is the bond's yield to call?

Question

Quizplus · Accepted Answer

The yield to call (YTC) is calculated by determining the interest rate that equates the present value of the bond's cash flows (coupons and call price) to its current price, assuming it is called at the earliest opportunity. Given the bond's annual coupon of 9% ($90), call price of $1,050, and callable in 4 years, the YTC is approximately 6.73%.

A Corporate Bond Which Matures in 12 Years, Pays a 9