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A corporate bond has a 10-year maturity and pays interest semiannually. The quoted coupon rate is 6%, and the bond is priced at par. The bond is callable in 3 years at 110% of par. What is the bond's yield to call

Respuesta :

Answer:

Bond's yield to call is 8.98%

Explanation:

Currently the price of the bond = $1,000

Let r be the yield to call

Semiannual payment = 3%*1000 = $30

Callable price = 110%*1000 =$1100

Bond is callable in 3 years

1000 = 30/(1+r/2) + 30/(1+r/2)^2 +30/(1+r/2)^3 ...($1100+$30)(1+r/2)^6

Solving  above gives:

r = 8.98%

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