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Calculating the approximate yield for a callable bond

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Assume you have purchased a 25 year, 9%, $1000 par callable bond with 19 years remaining until maturity and 4 years until the first call. If the call price is equal to par plus one year's interest and the market price is $1,050, what is the appropriate approximate yield, assuming annual interest payments?

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Solution Summary

This solution shows how to calculate the approximate yield of the given callable bond.

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The appropriate approximate yield is referring to the yield to maturity of the bond. The price of the bond is $1,050 while the call price is 1,000 + 90 = 1,090 ...

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