A company issues a 20-year,callable bond at par with an 6% annual coupon payments.The bond can be called at par in three years or any time after that on a coupon payment date.The call price is $110 per $100 of face value.What is the yield to call?

Question

Quizplus · Accepted Answer

To calculate yield to call, we need to find the rate at which the present value of future cash flows (coupon payments and the call price) equal to the current bond price.
Using a financial calculator, we get the following calculations:
N = 3; PV = -1000; PMT = 60; FV = 1000; CPT I/Y = 11.12%
If we use the call price of $1100 instead of $1000, the yield to call would be lower at 9.09%. Therefore, the correct answer is D) 9%.

A Company Issues a 20-Year,callable Bond at Par with an 6