###
**CFA Practice Question**

A callable bond is selling at a price of $1,043.50. It has a coupon of 5.75%, payable semi-annually, and 8 years left to maturity. It can be called after three years at a price of $1,100, a premium of 10% over face value, which declines by $20 every year. What is the yield to maturity and yield to first call for the bond?

A. 5.08% and 7.16%

B. 5.07% and 7.19%

C. 5.08% and 5.09%

**Explanation:**YTM is calculated on a financial calculator as:

PV = -1,043.50; PMT = 28.75; N = 16; FV = 1,000; CPT I/Y = 2.54% s.a., or 5.08% SAR

Yield to first call is calculated on a financial calculator as:

PV = -1,043.50; PMT = 28.75; N = 6; FV = 1,100; CPT I/Y = 3.58% s.a., or 7.16% SAR

###
**User Contributed Comments**
6

User |
Comment |
---|---|

Janks |
Shortcut: Calculate YTC first since all three answers are different from eachother. If you are confident in your answer, you don't need to do both calculations |

tijean25 |
Not sure how they went from 2.54 % to 5.08% neither 3.58% to 7.16% |

charliedba |
2.54% is 6-month rate. x2 you get annual rate. |

divyapeddi |
why is the FV for YTM taken as 1000? |

divyapeddi |
ok...got it.. I missed out on the 10% premium over face value. |

ajshittu |
Thank you Janks |