Question

Suppose you have a bond that is currently priced at 897.01. The bond is callable at 102 in 14 years, but will expire in 20 years. The bond has a face value of 1000 and pays semi annual coupons at a rate of 5.5%. What is the YTC of the bond?

Answer 1

Yield to call is the rate of return investor will receive if he holds the bond till it is called.

We can use excel to calculate YTC, using IRR function.

Coupon	Cash flow
0	-897.01
1	27.5
2	27.5
3	27.5
4	27.5
5	27.5
6	27.5
7	27.5
8	27.5
9	27.5
10	27.5
11	27.5
12	27.5
13	27.5
14	27.5
15	27.5
16	27.5
17	27.5
18	27.5
19	27.5
20	27.5
21	27.5
22	27.5
23	27.5
24	27.5
25	27.5
26	27.5
27	27.5
28	1047.5
YTC	3.37%
Formula	=IRR(select the data range)

Yearly YTC = 3.37*2 = 6.74