Question

A bond with 6 years remaining until maturity is currently trading for 102 per 100 of par value. The bond offers an 8% coupon rate with interest paid semiannually. The bond is first callable in 2 years, and is callable after that date on coupon dates according to the following schedule.

End of Year Call Price

4 103

5 102

6 100

A. What is the bonds YTM?

B. The bond's annual yield-to-first call is closest to?

C. What is the bond's yield to second call?

D. What is the bond's yield to worst?

Answer 1

A. What is the bonds YTM?

Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. ... In other words, it is the internal rate of return (IRR) of an investment in a bond if the investor holds the bond until maturity, with all payments made as scheduled and reinvested at the same rate

B. The bond's annual yield-to-first call is closest to?

The bond offers a 5% coupon rate with interest paid semiannually. The bond's annual yield-to-maturity is closest to: 2.09%.

C. What is the bond's yield to second call?

The term "yield to call" refers to the return a bondholder receives if the security is held until the call date, prior to its date of maturity. Yield to call is applied to callable bonds, which are securities that let bond investors redeem the bonds (or the bond issuer to repurchase them) early, at the call price.

D. What is the bond's yield to worst?

Yield to worst is a measure of the lowest possible yield that can be received on a bond that fully operates within the terms of its contract without defaulting. It is a type of yield that is referenced when a bond has provisions that would allow the issuer to close it out before it matures.