Question

A 10% coupon bond with annual payments and 10 years to maturity is callable in three years at a call price of $1,100. If the bond is selling today for $975, the yield to call is:
A. 10.26%.
B. 13.98%.
C. 9.25%.
D. 10.00%.
E. None of the options are correct.

Answer 1

Answer:

Option (B).

Explanation:

According to the scenario, computation of the given data are as follows:

Time period ( Nper) = 3 years

Coupon rate = 10%

So, Payment = $100

Present value = $975

Future value = $1,100

So, we can calculate the yield to call by using rate formula in excel.

The attachment is attached below:

Yield to call = 0.1398 or 13.98%