# Callable bonds & Yield to call date word problem

1. Oct 1, 2008

### Makman

1. The problem statement, all variables and given/known data
A corporation sold a 20-year, 10% semi-annual coupon bond issue 2 years ago. The bonds are callable at 108 ( percent of face value) 5 years after issue and at 104 (percent of face value) 10 years after issue. If the bonds are currently priced at 102.5 (percent of face value),

a) what would be a purchase’s
i) Yield to the first call date ?
ii) Yield to the second call date ?
iii)Yield to maturity ?

2. Relevant equations
Average Investment method:

Approx value of i = avrg income per interest payment interval
average book value
where
Average book value = 1/2 (quoted price + redemption price)
and
Average income =Total interest payments (premium or discount)
per interest number of interest payment intervals
payment interval

3. The attempt at a solution

I have solved similar problems but with a value i.e. 25-year \$1000 bonds with the follwing formula:

Price at a certain date P= R* 1-(1+ Y)^-n + F(1+Y)^-n
Y

Any suggestions on how to start?