Answer:
YTM = 16.55%
Explanation:
RTE Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $950.35. However, RTE Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on RTE Inc.’s bonds?
YTM= n th root of (Current Price/Face Value ) −1
where:
n=number of years to maturity = 18 years
Face value=bond’s maturity value or par value = $1,000
Current price=the bond’s price today = $950.35
18√(950.35/1000) - 1
YTM = 16.55 %
