1215

The yield to call is a less conservative yield measure than the yield to maturity whenever the price of a callable bond is quoted at a value:

A) equal to or greater than par value plus one year's interst.

B) equal to par value less one year's interest.

C) more than par.

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The more conservative yield measure is the one that results in a lower yield. The YTM on a discount bond will always be less than its yield to call.

1215

Consider a 5-year, semiannual, 10% coupon bond with a maturity value of 1,000 selling for $1,081.11. The first call date is 3 years from now and the call price is $1,030. What is the yield-to-call?

A) 7.28%.

B) 7.82%.

C) 3.91%.

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N = 6; PMT = 50; FV = 1,030; PV = $1,081.11; CPT → I = 3.91054

3.91054 × 2 = 7.82

1215

A 12% coupon bond with semiannual payments is callable in 5 years. The call price is $1,120. If the bond is selling today for $1,110, what is the yield-to-call?

A) 11.25%.

B) 10.25%.

C) 10.95%.

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PMT = 60; N = 10; FV = 1,120; PV = 1,110; CPT → I = 5.47546

(5.47546)(2) = 10.95

1215

PG&E has a bond outstanding with a 7% semiannual coupon that is currently priced at $779.25. The bond has remaining maturity of 10 years but has a first put date in 4 years at the par value of $1,000. Which of the following is closest to the yield to first put on the bond?

A) 14.46%.

B) 7.73%.

C) 14.92%.

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To compute yield to first put, enter: FV = $1,000; N = 2 × 4 = 8; PMT = $35; PV = -$779.25; CPT → I/Y = 7.23%, annualized as (7.23)(2) = 14.46%.

1215

Harmon Moving has a 13.25% coupon semiannual coupon bond currently trading in the market at $1,229.50. The bond has eight years remaining until maturity, but only two years until first call on the issue at 107.50% of $1,000 par value. Which of the following is closest to the yield to first call on the bond?

A) 4.72%.

B) 5.16%.

C) 9.14%.

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To compute yield to first call, enter: FV = $1,075; N = 2 × 2 = 4; PMT = $66.25; PV = –1,229.50, CPT → I/Y = 2.36%, annualized as (2.36)(2) = 4.72%.