A company issues a callable (at par) ten-year, 6% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $104 per $100 of face value. What is the yield to call of this bond when it is released?

Question

Quizplus · Accepted Answer

The yield to call is calculated based on the bond being called at the earliest possible date, which is one year after release. The bond is priced at $104, and if called, it will be redeemed at $100. The yield to call considers the coupon payment and the capital loss from $104 to $100 over one year, resulting in a yield of 1.92%.

A Company Issues a Callable (At Par) Ten-Year, 6% Coupon