Question

A corporate bond pays interest twice a year and has 16 years to maturity, a face...

A corporate bond pays interest twice a year and has 16 years to maturity, a face value of $1,000 and a coupon rate of 5.8%. The bond's current price is $1,353.74. It is callable starting 10 years from now (years to call) at a call price of $1,124.

1.What is the bond's (annualized) yield to maturity?

2.What is the bond's (annualized) yield to call?

3. If you buy the bond today and hold it as long as possible, which rate of return can you expect to earn?

The yield to maturity (YTM) or The yield to call (YTC)

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Answer #1

a)

b)

c)

The yield to call (YTC) will be earned as it is lesser.

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