Question:
A 7.25% coupon bond with 25 years left to maturity can be called in 5 years. The call premium is one year of coupon payments (i.e. when the bond is recalled 5 years from now, you receive a face value of $1,072.50). It is offered for sale at $1,066.24. What is the yield to call of the bond? (Assume that interest payments are paid semi-annually).