A bond has 11 years to maturity, pays a 8

Finance Jun 22, 2021

A bond has 11 years to maturity, pays a 8.50% annual coupon and sells today for $930. In 8 years it can be called at 112% of face value. What is its yield to call?

a) 10.87%

b) 9.80%

c) 9.56%

d) 10.23%

e) 10.18%

Expert Solution

Computation of Yield to Call using Rate Function in Excel:

=rate(nper,pmt,-pv,fv)

Here,

Rate = Yield to Call = ?

Nper = 8 years

PMT = 1000*8.50% = 85

PV = 930

FV = 1000*112% = 1120

Substituting the values in formula:

=rate(8,85,-930,1120)

Rate or Yield to Call = 10.87%

So, the correct option is A "10.87%".

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