Question

	3) A bond currently sells for $850.  It has an eight-year maturity, an annual coupon of $80 but paid semi-annually, and a par value of $1,000. This bond has a callable feature. If this bond can be called after 5 years, for $1,025. (1) What is its annual yield to maturity?   (2) What is its current yield?     (3) What is the bond’s nominal yield to call (YTC)? (4)   If you bought this bond, would you be more likely to earn the YTM or the YTC?
	Years to Maturity				# of Payments per year
	Years to Call				Periods to maturity
	Annual Coupon Payment				Periodic Payment
	Current price				Periods to Call
	Par value = FV				Call Price
	(1)
	rd =YTM:
	Annual YTM
	(2)
	Current yield:
	Capital gains
	(3)
	rd =YTC:
	Annual YTC

Answer 1

(4)   If you bought this bond, would you be more likely to earn the YTM or the YTC?

I would most likely get lowest Yield = i.e., YTM = 10.85% because company won't use call right when Yield to call is higher than YTM

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