A 7.25% coupon bond with 25 years left to maturity can be called in 5 years. The call premium is one year of coupon payments. It is offered for sale at $1066.24. What is the yield to call of the bond? (please draw time line and use financial calculator. Do not forget to multiply semi-annual rate by two to get annualized YTC
Added by Gregory E.
Step 1
First, we need to calculate the present value of the bond using the given price of $1066.24. We can use the PV function on a financial calculator: N = 25 x 2 = 50 (since the bond pays semi-annual coupons) I/Y = ? (this is what we need to find) PMT = 7.25% x $1000 Show more…
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