JGovender

The call option decreases the bond price wheareas the the put option increases the bond price.

Consider a Treasury bond with the same intrest rate but doest not have a call option.Hence the treasury bond will emerge as the favourate amoung the two bonds as it doest not have any risk involved with it compared to the risk involved when a bond is called. (If a bond is called by the issuer the invester tends to loose the yield over the bond after it is called back.)

To compensate for the risk involved in the call option the price of the bond is DECREASED.
If the price of the bond is decreased say form 100 to 90 the EFFECTIVE % of yield increases as the invester has to pay less amount for a comparitively larger intrest rate.

NOTE: The new owner of the bond will be getting the yield of 8% same as that was offered by the issuer but now he is getting the yield on a relatively lower bond price. This denotes that the yield has incresed.

The yield is always with respect to the market conditions.