Yield to call is the rate of return that the bondholder will get if the bond is called before the maturity date or on-call date. Technically it is the rate at which the current price of the bond is exactly equal to the present value of the cash flows associated with the bond until the bond is called. Here the yield to maturity is not relevant as the bond is about to be called before its maturity.
Assume a bond is currently priced at $1059 and has a face value of $1000, paying an 8% coupon annually. If the bond has an option to call after 6 years from now at $980 the YTC will be calculated using this expression.
P = Coupon x [(1 - (1 + YTC)-t) / YTC] + (Call Price / (1 + YTCt)
$1059 = $80 x [(1 - (1 + YTC)-6) / YTC] + ($980 / (1 + YTC6)
YTC = 6.498%
Kaufman Enterprises has bonds outstanding with a $1,000 face
Robert Black and Carol Alvarez are vice presidents of Western Money Management
It is now January 1, 2009, and you are considering
a. Bond; Treasury bond; corporate bond; municipal bond
Atlantis Fisheries’ zero coupon bonds referred to in Problem 8 are callable
Arnot International’s bonds have a current market price of $1,
Fooling Company has a 10 percent callable bond outstanding on the market
Sam Strother and Shawna Tibbs are vice presidents of Mutual of
Define and discuss how to calculate a bond’s coupon rate, current
Assume a municipal bond has 18 years until maturity and sells for
