A 12% coupon bond with semi-annual payments is callable in five years. The call price is $1,120. If the bond is selling today for $1,110, what is the yield to call?

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Quizplus · Accepted Answer

The yield to call (YTC) is calculated using the bond's current price, the call price, the coupon rate, and the time to call. The bond's annual coupon payment is $120, and with semi-annual payments, each payment is $60. The bond is callable in 5 years, so there are 10 periods. Using the formula for YTC, the yield is approximately 10.95%.

A 12% Coupon Bond with Semi-Annual Payments Is Callable in Five