Question

McCue Inc.'s bonds currently sell for $1,175. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM; it is possible to get a negative answer.)

Answer 1

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BOND- Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins Σ AutoSum - Cut AC Wrap Text Calibri 11 General ECopy Fill Merge & Center Insert Delete Format Paste +.0 .00 .00 0 Conditional Format Cell Sort & Find & BIU % Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox Y171 Formula Bar X Y Z AA 153 154 155 ANNUAL BOND 156 fv 1000 157 1175 158 pv coupon (S) no of years 159 90 160 25 161 CALLED IN 5 call price YTM (ANNUAL) 162 1050 7.4385% [=RATE (X77,-X75,X74,-X73)] 163 164 5.7634% [=RATE (X79,-X75,X74,-X80)] YTC (ANNUAL) 165 166 167 -1.68% [rounded to 2 decimals] [5.7634%-7.4385%] 168 ANSWER DIFFERENCE 169 170 171 172 173 BANKING NOTE S1S3 AFN Sheet2 WARRANT refund S4 S5 S6 LP, IP, MRP, INFLATION S7 S8 CLEAN PRICE S10 BIDDING, UNDERWRITING EUAC AW LIFE Rea 120% (- erences WA 08:31 TENG 06-11-2019