Question

A bond has a $1,000 par value, 19 years to maturity, and pays a coupon of 5.75% per year, semiannually. The bond can be called in four years at $1,085. If the bond’s current yield is 5.54% per year, what is its yield to call?

Question 10 options:

A)

6.82%

B)

6.76%

C)

6.61%

D)

6.91%

E)

6.56%

Answer 1

E) 6.56%

Step-1:Calculation of current Price
Current Price	=	Annual coupon	/	Current Yield
	=	$         57.50	/	5.54%
	=	$   1,037.91
Working:
Annual coupon	=	face value	*	Coupon Rate
	=	$   1,000.00	*	5.75%
	=	$         57.50
Step-2:Calculation of yield to call
Yield to call	=rate(nper,pmt,pv,fv)*2
	= 6.55%
Where,
nper	=	4*2	=	8
pmt	=	1000*5.75%*6/12	=	$         28.75
pv			=	$ -1,037.91
fv			=	$   1,085.00