Question

A callable bond can be called at 15% above par. The coupon rate on the bond...

A callable bond can be called at 15% above par. The coupon rate on the bond is 8% and the bond has 10 years to maturity. Suppose the bond pays coupons SEMI-ANNUALLY. Calculate the yield-to-call if the bond has 4 years to the nearest call date and is currently selling for $1,050.

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Answer #1

YTC is the rate of return that a bond provides to the Holder till the bond is caaled.

YTC = Rate at which least +ve NPV + [ NPV at that rate / change in NPV due to inc of 0.5% ] * 0.5%

= 4.5% + [ 22.50 / 35.60 ] *0.5%

= 4.5% + 0.32%

= 4.82%

YTC for Six Months = 4.82%

YTC per anum = 4.82% * 2

= 9.64%

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