Calculating YTM and YTC
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Laser Industries has just issued callable twelve-year, 6% coupon bonds with semi-annual coupon payments. The bonds can be called at 103 in four years or anytime thereafter on a coupon payment date. The current bond price is 101. For an investment today in these bonds (assuming no transaction costs):
a. What is an investor's Yield to Maturity?
b. What is an investor's Yield to Call?
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Solution Summary
Solution describes the steps to calculate yield to maturity (YTM) and yield to call (YTC).
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Please refer attached file for better clarity of tables and formulas.
Solution:
a. What is an investor's Yield to Maturity?
Bond Price=101% of face value= 1010
Couopn payments=1000*6%/2= 30
Number of coupon payments=2*12=24
Let us see cash flows
Period Cash Flow
0 -1010
1 30
2 30
3 ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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