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 worst of this bond when it is released?

Question

Quizplus · Accepted Answer

B) Using a financial calculator, PV = -104, FV = 100, PMT = 6, N = 1;
computing interest = 1.92%; yield to call = 1.92%
Using financial calculator, PV = -104 FV = 100 PMT = 6 N =10
computing interest = 5.47%; yield to maturity = 5.47%
1.92% is worse than 5.47%; hence, 1.92% is the yield to worst.

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