Suppose you have a 15 percent, 25-year bond traded at $975. If it is callable in 5 years at $1050, what is the bond's yield to call? Interest is paid annually.

Question

Quizplus · Accepted Answer

The yield to call (YTC) can be calculated using a financial calculator or Excel, considering the bond's current price, the call price, the time until call, and the annual coupon payment. The bond pays 15% of $1000 (its face value) annually, which is $150. It is currently priced at $975 and can be called in 5 years at $1050. Using these inputs to solve for YTC gives a rate of approximately 16.5%. This calculation involves finding the interest rate that equates the present value of all future cash flows (coupon payments and the call price) to the bond's current price.

Suppose You Have a 15 Percent, 25-Year Bond Traded at $975