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Yield to Call- Five year’s ago, Wyatt Corporation sold a 25-year bond issue with a 12%...

Yield to Call- Five year’s ago, Wyatt Corporation sold a 25-year bond issue with a 12% annual coupon rate and an 6% call premium. TODAY, they called the bonds. The bonds were originally sold at their face or par value of $1,000. Compute the realized rate or return, I/Y, for an investor who purchased the bond WHEN it was issued and who surrenders it today at the CALL price.

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Answer #1
Since bond is issued 5 years ago and called today i.e. Period of holding
is 5 years
PV $        1,000 Issued price always used with - sign
par value $        1,000
Call value(FV) $        1,060 maturity value
(1000 x 106%)
PMT                120 (1000 x12%)
NPER 5 Yrs
Rate(I/Y) 12.93%
=RATE(5,120,-1000,1060)
So the realized rate of return for investor is 12.93% that is above its coupon rate.
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