Fooling Company has a 12.4 percent callable bond outstanding on the market with
ID: 2777919 • Letter: F
Question
Fooling Company has a 12.4 percent callable bond outstanding on the market with 25 years to maturity, call protection for the next 10 years, and a call premium of $100. What is the yield to call (YTC) for this bond if the current price is 106 percent of par value? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
Fooling Company has a 12.4 percent callable bond outstanding on the market with 25 years to maturity, call protection for the next 10 years, and a call premium of $100. What is the yield to call (YTC) for this bond if the current price is 106 percent of par value? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
Explanation / Answer
Calculation of Yield to call (YTC):
YTC =(C + (F-P)/n) / ((F+P)/2)
C = Annual Interest = Face value * Interest rate = 1000*12.4% = 124
F= Cal price of the Bond = $1000+100 = $1100
P = Price of the Bond =$1000*106% = $1060
n = years to call =10
YTC = (124 + (1100-1060)/10) / ((1100+1060)/2)
=(124 +4) / 1080
= 0.118519
= 11.85%
Hence Yield to call for the bond is 11.85%