Yield to call on a bond with a coupon rate of 8% paid semi-annually, 10 years to maturity, a par value of $1,000 and a selling price of $1,071, callable after 5 years at $1,010 is

Question

Quizplus · Accepted Answer

The yield to call (YTC) is calculated based on the bond's coupon rate, time until the call date, par value, call price, and current selling price. Given the bond's semi-annual coupon payments, the calculation involves finding the interest rate that equates the present value of all future cash flows (coupons and call price) to the bond's current price. The correct answer, 6.49%, reflects the yield assuming the bond is called at the earliest opportunity, which is a common scenario for bonds trading above their call price.

Yield to Call on a Bond with a Coupon Rate