Answer:
Yield to maturity = 1.96% (approx.)
Explanation:
Yield to maturity (YTM):
Yield to maturity measures the annual return an investor would receive if he or she held a particular bond until maturity.
Formula:
Yield to maturity = {Coupon + ( Face Value - Present Value or call price) / Years till call } / { (face value + Present Value or call price) /2}
As the company issues a callable (at par) ten-year, 6% coupon bond with annual coupon payments so
per face value = $100.
Years to maturity = 10 years.
Coupon rate = 6%.
Annual coupon payment = 0.6 * 100 = $6
As on release, it has a price of $104 per $100 of face value so
Present value of bond = $104
Future value is = $100
As the bond can be called at par in one year after release or any time after that on a coupon payment date.
Therefore by putting the values in the above formula, we get
Yield to maturity = {6 + ( 100 - 104) / 1 } /{ (100 + 104)/2}
Yield to maturity = 1.96% (approx.)
