A company issues a 20-year, callable bond at par with 6% annual coupon payments. The bond canbe called at par in three years or any time after that on a coupon payment date. The call price is $110 per $100 of face value. What is the yield to call?

Question

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To calculate the yield to call, we need to find the rate that equates the present value of the bond's future cash flows to the call price. Using a financial calculator or spreadsheet program, the yield to call is approximately 9%. This is the best choice because it represents the rate of return the investor would receive if the bond is called in three years at a call price of $110.

A Company Issues a 20-Year, Callable Bond at Par with 6