Yield to Call A company issues a callable bond with the falling features 7 coupon rate Semi annual coupon payments $1,000 face value Matures in 15 years The bond may be called after 3 years Call premium If the bond is called anytime during the 2 years period beginning 3 years from today and ending 5 years from today, the company will pay a face value of $1,250 instead of $1,000 Compute the yield an investor will earn buying the bond today for $1,233 10 if it is called in exactly 3 years and one day from today (the first day is it eligible to be called)

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Question: Yield-to-Call A company issues a callable bond with the falling features: 7% coupon rate Semi-annual coupon payments $1,000 face value Matures in 15 years The

Yield-to-Call

A company issues a callable bond with the falling features:

7% coupon rate
Semi-annual coupon payments
$1,000 face value
Matures in 15 years
The bond may be called after 3 years.
Call premium: If the bond is called anytime during the 2-years period beginning 3 years from today and ending 5 years from today, the company will pay a face value of $1,250 instead of $1,000.

Compute the yield an investor will earn buying the bond today for $1,233.10 if it is called in exactly 3 years and one day from today (the first day is it eligible to be called).

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