YIELD TO CALL-6
Seven years ago the Templeton Company issued 29-year bonds with an 11% annual coupon rate at their $1,000 par value. The bonds had an 5% call premium, with 5 years of call protection. Today Templeton called the bonds.
1.
Using Microsoft Excel
=RATE(7,11%*1000,-1000,1000*(1+5%))
=11.50%
2.
The bond is called when interest rates fall and the issuer issues
new bonds at lower rate
Since the bonds have been called, interest rates must have fallen
sufficiently such that the YTC is less than the YTM. If investors
wish to reinvest their interest receipts, they must do so at lower
interest rates.
YIELD TO CALL-6 Seven years ago the Templeton Company issued 29-year bonds with an 11% annual coupon rate at their $1,00...
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