Question

In 2020, a customer buys 1 GE 10%, $1,000 par debenture, M '35, at 115. The interest payment dates are Jan 1st and Jul 1st. The bond is first callable in 2030 at 102. The yield to call on the bond is

Answer 1

Answer:

8.02%

Explanation:

the yield to call = {coupon + [(call price - market price)/n]} / [(call price + market price)/2]

• coupon = $50
• call price = $1,020
• market price = $1,150
• n = 10 x 2 = 20

YTC = {50 + [(1,020 - 1,150)/20]} / [(1,020 + 1,150)/2]

YTC = 43.50 / 1,085 = 4.01% x 2 (annual interest) = 8.02%