Question

In 2015, SN medical devices issued bonds with 30 years maturity, 10 years call protection, par value of $1000, call price of $1090, coupon rate of 6% and annual coupon payments. Today, year 2020, the bonds trade at a price of $1250. What is the yield to call if SN calls the bonds at the first possible opportunity?

a. 3.72%

b. 9.32%

c. 3.62%

d. 2.36%

Answer 1

Given about SN medical,

They issued a bond in 2015 for 30 years to maturity and 10 years to call

In 2020, year remaining to call is 5 years

Price = $1250

face value of bond = $1000

Coupon rate = 6% paid annually

annual coupon payment = 6% of 1000 = $60

Call price = $1090

So, yield to call can be calculated on financial calculator using following values:

FV = 1090

PV = -1250

N = 5

PMT = 60

Compute for I/Y, we get I/Y = 2.36%

So, Yield to call if SN calls the bonds at the first possible opportunity is 2.36%

Option d is correct.