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Suppose a 14 year, 5%, semiannual coupon bond with a par value of $1000 is currently...

Suppose a 14 year, 5%, semiannual coupon bond with a par value of $1000 is currently selling for $950. The bond can be called in another 3 years for $1075. Whould you be more likely to earn the yield to call or the yield to maturity?

Yield to call because the current price is below the call price.

Yield to call because the coupon rate is above the yield to maturity.

Yield to maturity because the current price is below the call price.

Yield to maturity because the coupon rate exceeds the current market required return.
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Answer #1

Yield to maturity because the coupon rate exceeds the current market required return.

The YTM = 2.759% per semiannual

YTC = 4.59% per semiannual period

Hence the bonds will be held till maturity since they are lower than YTC. The YTM is high because the coupon rate is greater than the required rate.

Sign in - Book1 Excel Share Tell me what you want to do Home InsertDrawPage Layout FormulasData Review View File 11A A 25, Wrap Text General ▼ Calibri . Sort & Find & Editing % , 4,0ナ Conditional Format as Cell Insert Delete Format Paste ta Merge & Center-5 . Filter Select Formatting Table Styles Styles Cells Number Alignment Clipboard反 C1 -RATE (14* 2,5% * 1000/2,-950, 1000) YTC -RATE (3* 2,5% * 1000/2,-950, 1075) 4 10 12 13 14 15 16 17 Sheet1 Sheet2 Sheet3 + 100 Ready C ENG 9:14 PM

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