"An 8% corporate bond with 20 years left to maturity is currently trading at 120. The bond is callable in 4 years at 104. If a client buys the bond and then the issuer calls it in 4 years, the yield to call will be:"

Yield to call (YTC) refers to the return a bondholder will receive in the event that he holds the bond until the call date which is sometime before the maturity date.

The YTC can be calculated using the following formula:

YTC = (C + (CP - P) / t) / ((CP + P) / 2) .......................... (1)

Where:

YTC = YTW = yield to call or yield to worst = ?

C = Annual coupon interest payment = Bond interest rate * Bond face value = 8% * $100 = $8.00

CP = Callable price of the bond = $104

P = Current price of the bond = $120

t = time in years remaining until the call date = 20 - 4 = 16 years

Substituting the values into equation (1), we have:

YTC = ($8 + ($104 - $120) / 16) / (($104 + $120) / 2)

YTC = $7 / $112 = 0.06, or 6%.

Therefore, the yield to call will be 6%.