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Homework answers / question archive / A 10% coupon bond with semi-annual payments is callable in ten years
A 10% coupon bond with semi-annual payments is callable in ten years. The call price is $1,150. If the bond is selling today for $1,110, what is the yield to call?
We can calculate the yield to call by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = Yield to call (semiannual)
Nper = 10*2 = 20 periods (semiannual)
Pmt = Coupon payment = $1,000*10%/2 = $50
PV = $1,110
FV = Call price = $1,150
Substituting the values in formula:
= rate(20,50,-1110,1150)
= 4.62%
Yield to call = Rate * 2
= 4.62% * 2
= 9.24%
