Boyd Advertising has bonds outstanding that have a 9 percent annual coupon and a face value of $1,000. The bonds will mature in 10 years, although they can be called before maturity at a call price of $1,050. The bonds have a yield to call of 6.5 percent and a yield to maturity of 7.4 percent. If interest rates remain at their current level, how long until these bonds may first be called?

Question

Quizplus · Accepted Answer

The correct answer is A because the yield to call is 6.5 percent, which is less than the yield to maturity of 7.4 percent. This means that the bonds are currently trading at a discount to their call price, and the issuer will not call the bonds until the yield to call rises to the yield to maturity. The yield to call will rise to the yield to maturity in approximately 3.16 years.

Boyd Advertising Has Bonds Outstanding That Have a 9 Percent