Question

Coupon bond that pays interest of 8% annually has a par value of 1,000 matures in 20 years and is selling today at 1,200 ( or 120% ask price). Actual yield?

Suppose that the bond is callable in 3 years at 100%. Therefore, the issuer has the right to buy the bond at par value after 2 years. In this case. what's the yield to call?

Answer 1

Calculating yield to maturity,

Using TVM Calculation,

I = [FV = 1,000, PMT = 80, N= 20, PV = -1,200]

I = 6.22%

Calculating yield to call,

Using TVM Calculation,

I = [PV =-1,200, PMT = 80, N= 3, FV = 1,000]

I = 1.18%