Question

A $1,000 par value bond sells for $1,216. It matures in 20 years, has a 48 percent coupon, pays interest semiannually, and can be called in 5 years at a price of $1197. What is the bond's Yield -to-Call?

Answer 1

Yield to call means return that stockholder receives if the bond is held upto the date of call. Thus, if the call date is before maturity yield to call calculates till call date only.

Yield to call = [ Coupen Amount + { (Maturity value - Price) / N } ] / [ (Price + Maturity value) / 2 ]

                 = [ 1000 * 4.8% + { (1197 - 1216 ) / 5 } ] / [ ( 1216 + 1197 ) / 2 ]

                  = [ 48 - 3.8 ] / 1206.50

                  = 3.66% Answer