A 6.5 percent coupon bond with 12 years left to maturity can be called in four years. The call premium is one year of coupon payments. It is offered for sale at $1,190.25. What is the yield to call of the bond? (Assume interest payments are paid semiannually and par value is $1,000.)

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The yield to call (YTC) is calculated by considering the bond's call price, current price, coupon payments, and time to call. The bond's call price is $1,065 (par value $1,000 + $65 call premium). The bond is callable in 4 years, or 8 semiannual periods. The semiannual coupon payment is $32.50 ($65 annual coupon / 2). Using the formula for YTC, the semiannual yield is approximately 1.48%, which annualizes to 2.96%.

A 65 Percent Coupon Bond with 12 Years Left to Maturity