A.Define a callable bond. How is a callable bond different from a non-callable bond?

Consider a non-callable bond with an 8% coupon and with yield to maturity = 10%. If the bonds yield to maturity remains constant, then in one year will the bond price be higher, lower, or unchanged? Why?

Problem 3 (continued)

B. A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in 5 years at a call price of $1100. The bond currently sells at a yield to maturity (YTM) of 7% (3.5% per half-year). What is the yield to call? How does it relate to the YTM? Why?

(8 points)