A 10% coupon bond with semi-annual payments is callable in ten years

Finance Aug 13, 2020

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?

Expert Solution

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%

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