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On January 1, 2019, YTR Company issued $1,700,000 of 15-year, 8% coupon bonds. The bonds pay...

On January 1, 2019, YTR Company issued $1,700,000 of 15-year, 8% coupon bonds. The bonds pay interest semi-annually and they sold for $2,040,000. The bonds can be called after 5 years at 101. Compute the YTM and the YTC. Would the issuing firm call the bonds in prior to maturity?

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Answer #1
Yield to maturity (Semi annual) Using rate function in MS excel rate(nper,pmt,pv,fv,type) nper = 15*2 =30 Pmt = 1700000*4% =68000 pv = 2040000 fv =1700000 type =0 RATE(30,68000,-2040000,1700000,0) 2.98%
YTM- annual 2.98*2 5.96
Yield to call (Semi annual) Using rate function in MS excel rate(nper,pmt,pv,fv,type) nper = 5*2 =10 Pmt = 1700000*4% =68000 pv = 2040000 fv =1700000*101% = 1717000 type =0 RATE(10,68000,-2040000,1717000,0) 1.88%
YTC- annual 1.88*2 3.76
Yes as YTC is less than YTM
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