honeycfa

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 par value less one year's interest.

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

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.

honeycfa

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) 5.16%.

B) 9.14%.

C) 4.72%.

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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%.