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    Calculating YTC and YTM

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    Taussig Corp.'s bonds currently sell for $1,150. They have a 6.75% annual coupon rate and a 15-year maturity, but they can be called in 6 years at $1,067.50. 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. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds,
    a) If the bond is called , the YTC
    b) if it held till maturity, YTM

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    Solution Preview

    Please refer attached file for better clarity of formulas used in MS Excel.

    Calculating Yield to Maturity (YTM)

    Number of coupon payment left= 15
    Coupon payment=6.75% of $1000=67.5
    Current Price=1150

    Let us see cash flows from now
    Year Cash Flow
    0 ...

    Solution Summary

    Solution describes the steps to calculate YTM and YTC.