A 4.75 percent coupon bond with 12 years left to maturity can be called in two years. The call premium is one year of coupon payments. It is offered for sale at $1037.35. What is the yield to call of the bond? (Assume that interest payments are paid semiannually and par value is $1,000.)

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The yield to call (YTC) can be calculated using the bond's price, the time until the call date, the call price, and the coupon payments. The call price is the par value plus one year of coupon payments, which is $1,000 + (4.75% of $1,000) = $1,047.50. Given that the bond is callable in two years and interest is paid semiannually, there are 4 periods until the call. The bond's current price is $1037.35, and the semiannual coupon payment is ($1,000 * 4.75%) / 2 = $23.75. Using these inputs in the yield to call calculation or a financial calculator, the YTC is found to be approximately 5.05 percent.

A 475 Percent Coupon Bond with 12 Years Left to Maturity