11.7 Regal Health Plans issued a 12 percent annual coupon bond with a $1,000 par value a few years ago. The bond now has ten years remaining to maturity and sells for $1,100. The bond has a call provision that allows Regal to call the bond in four years at a call price of $1,060.

a. What is the bond's yield to maturity?

Coupon rate = 12% par value = 1000 current price = 1100 call price = 1060 PMT = 1000 (0.12) = 120

Years to maturity = 10 Yrs. Years to call = 4 Yrs.

=RATE (10,120, -1100,1000) = 10.35% (using Excel formula)

b. What is the bond's yield to call?