It is now January 1, 2019, and you are considering the purchase of an outstanding bond that was issued on January 1, 2017. It has a 9.5% annual coupon and had a 30-year original maturity. (It matures on December 31, 2046.) There is 5 years of call protection (until December 31, 2021), after which time it can be called at 108—that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 120.08% of par, or $1,200.80.
%
What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places.
%
a. YTM = "=RATE(NPER,PMT,PV,FV,TYPE)"
YTM = "=RATE(28,-95,1200.80,-1000,0)"
YTM = 7.73%
b. YTC = "=RATE(NPER,PMT,PV,FV,TYPE)"
YTC = "=RATE(3,-95,1200.80,-1080,0)"
YTC = 4.71%
c. Option IV. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
d. Option II Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC
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