Question

Consider the case of BTR Co.: BTR Co. 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 $1,100.35. However, BTR Co. 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 BTR Co.’s bonds?

Answer 1

Answer:

Yield to maturity is 7.93%

Yield to call is  7.83%

Explanation:

I calculated both the yield to maturity and yield to call using the rate formula in excel which is =rate(nper,pmt,pv,-fv)

nper is the year to maturity and year to call of 18 years and 8 years respectively.

pmt is the periodic coupon payment is 9%*1000=$90 in each case.

pv is the present value in each  case of $1100.35

The future value which is the redemption value is $1000 for yield to maturity and $1060 for yield to call

Find attached detailed calculation