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    Yield to Maturity and the Yield to Call

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    Please help with the given problem:

    It is now January 1, 2009, and you are considering the purchase of an outstanding RDC bond that was issued on January 1, 2007. The bond has a 9.5% annual coupon and a 30 year original maturity (it matures in December 31, 2036). There is a 5 year call protection (until December 31, 20011), after which time the bond can be called at 109 (that is, at 109 percent of par, or $1,090). Interest rates have declined since the bond was issued, and the bond is now selling at 116.575% percent of par, or $1,165.75. You want to determine both the yield to maturity and the yield to call for this bond.

    Thank you!

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    Solution Preview

    ** Please see the attached file for the an Excel formatted copy of the solution **

    The YTM is the discounting rate that will make the present value of interest and principal equal to the price today.
    In the same way YTC is ...

    Solution Summary

    This solution explains how to calculate the yield to maturity and the yield to call of a bond. The solution is provided in Excel format for the student's convenience.