CFA Practice Question

CFA Practice Question

Consider the following bond:

15 years until maturity
10% coupon (paid semi-annually)
Price $115.00
Callable in 10 years at $105
Par value $100

Calculate the yield to call.
A. 5.00%
B. 8.12%
C. 8%
Explanation: The yield to call is calculated on a semi-annual basis. Thus using your calculator, you know that PV = -$115.00 (negative number to simulate the direction of cash flows), PMT = 5 (semi-annual coupon), N=20 (number of years until call x 2), and FV = $105. At this point you are able to calculate the yield to call of 8.12% (4.058 semi-annual rate x 2).

User Contributed Comments 1

User Comment
takor strange that there was no distracting option of 4.06% in the answer options!:-)
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