ABC Inc.'s bonds currently sell for $1,180 and have a par value of $1,000. They pay a $105 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to call (YTC)

Question

Kyle Foley

Business

9 July, 18:54

ABC Inc.'s bonds currently sell for $1,180 and have a par value of $1,000. They pay a $105 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to call (YTC)

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Answers (1)

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Jared Sharp · Answer 1

Yield to call is 9.8%

Explanation:

The rate of return bonholders receives on a callable bond until the call date is called Yield to call.

Yield to Call = [ C + (F - P) / n ] / [ (F + P) / 2 ]

C = Coupon Payment = $105 per year

F = Face value = $1,000

P = Call price = $1,100

n - = number of years to call = 5

Yield to Call = [ $105 + ($1,000 - $1,100) / 5 ] / [ ($1,000 + $1,100) / 2 ]

Yield to Call = [ $105 - 2 ] / $1,050 = $103 / $1,050 = 0.098 = 9.8%