Question

# A bond with 6 years remaining until maturity is currently trading for 102 per 100 of...

A bond with 6 years remaining until maturity is currently trading for 102 per 100 of par value. The bond offers an 8% coupon rate with interest paid semiannually. The bond is first callable in 2 years, and is callable after that date on coupon dates according to the following schedule.

End of Year

4

5

6

Call price

103

102

100

A. What is the bonds YTM?

B. The bond's annual yield-to-first call is closest to?

C. What is the bond's yield to second call?

D. What is the bond's yield to worst?

A. Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate.

The YTM of a discount bond that does not pay a coupon is a good starting place in order to understand some of the more complex issues with coupon bonds. The formula to calculate YTM of a discount bond is as follows:

YTM=(Face Value/Current Price)1/n​​−1

(b)

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