Mighty Mollusk, Inc.issued a 30-year bond which is callable in 8 years.It has a coupon rate of 5.5% payable semi-annually, a yield to maturity of 8% and a call premium of one year's interest.What is the yield to call?

Question

Quizplus · Accepted Answer

Solution using a financial calculator:
First find the price of the bond:
N = 30 × 2 = 60
I = 8/2 = 4
PMT = 55/2 = 27.50
FV = 1000
Solve for PV = 717.21
Solve for Yield to Call:
N = 8 × 2 = 16
PV = -717.21
PMT = 55/2 = 27.50
FV = 1055
Solve for I = 5.71 × 2 = 11.42%