Answer:
Their yield to call is 8.672%
Explanation:
The rate of return bondholders receives on a callable bond until the call date is called Yield to call.
Use following formula to calculate the yield to call
Yield to Call = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]
Where
C = Coupon Payment = $1,000 x 11% x 6/12 = $55
F = Face value = $1,000
P = Call price = $1,125
n -= number of periods to call = 7 years x 2 = 14 periods
Yield to Call = [ $55 + ( $1,000 - $1,125 ) / 14 ] / [ ( $1,000 + $1,125 ) / 2 ]
Yield to Call = 46.07 / $1,062
Yield to Call = 0.04336
Yield to Call = 4.336% semiannually
Yield to Call = 4.336% x 2
Yield to Call = 8.672% annually
