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Q50. It is 12/31/2015 and you’re considering purchasing a 20 year, 8% semi-annual coupon bond currently...

Q50. It is 12/31/2015 and you’re considering purchasing a 20 year, 8% semi-annual coupon bond currently priced at 102. It becomes callable on 12/31/2017 at 105. Calculate the bond’s yield to worst.

a. 6.23%

b. 7.51%

c. 7.80%

d. 9.22%

e. 9.25%

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Answer #1

The above bond's yield would be worst if it called immediately after it becomes callable on 12/21/2017.

Similarly, bond's yield will be 7.8% if the bond is held until maturity. Explanation:

So, Bond's yield to worst is 7.8%.Option C.

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