McCu Inc 's bond currently sells for 1,250. They pay a $90 annual coupon, have a 25-year maturity...

Question:

McCu Inc 's bond currently sells for 1,250. They pay a $90 annual coupon, have a 25-year maturity and a 1009 par value but they can vibe called in 5 years at 1050. Assume that no cost other than the call premium would be incurred to call and refund the bond. What is the bond yield to maturity?

Callable Bond:

A callable bond can be retired before maturity. This option lies in the hands of the company and it may choose to exercise it or let it expire. The call feature does not affect the yield to maturity (YTM) of the bond. We can compute it as if the bond was not callable.

Answer and Explanation:

This bond has an unusual par value of $1,009. We can use the bond price formula assuming the bond is held to maturity to find its yield to maturity...

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How to Calculate Yield to Maturity: Definition, Equation & Example

from Financial Accounting: Help and Review

Chapter 5 / Lesson 32
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