A company issues a 10-year,callable bond at par with 8% annual coupon payments.The bond can be called at par in one year after issue or any time after that on a coupon payment date.The call price is $105 per $100 of face value.What is the yield to call if this bond is called in one year?

Question

Quizplus · Accepted Answer

The yield to call is calculated based on the bond being called at the call price of $105 after one year. The bondholder receives an 8% coupon payment and an additional $5 (since the bond is called at $105 instead of $100). The yield to call is the interest rate that equates the present value of these cash flows to the bond's price, which is approximately 13%.

A Company Issues a 10-Year,callable Bond at Par with 8