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24 October, 11:02

Sadik 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) ? 6.63% 6.98% 7.35% 7.74% 8.12%

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  1. 24 October, 11:18
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    7.74%

    Explanation:

    The yield to call would be the internal rate of return considering the cahsflow until the bodn is called. W can solve for that using excel IRR function;

    We list the cashflow in order.

    F0 - 1180

    F1 105

    F2 105

    F3 105

    F4 105

    F5 1205 (105 coupon payment plus 1100 principal)

    We now write the function and get the YTC

    =IRR (B1:B6) 7.7366%
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