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Calculating YTC and YTM

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Two years ago, Laser Industries issued callable eighteen-year, 9% coupon bonds at par value of $1,000 per bond with annual coupon payments. The bonds have just completed their second coupon payment. The bonds can be called at 104 five years from the date of issue or anytime thereafter on a coupon payment date. It has a current price of 103. For an investment today in one of 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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Please refer attached file for better clarity of tables and formulas.


a.  What is an investor's Yield to Maturity?

Number of coupon payment left= 16
Coupon payment=9% of $1000= 90
Current Price=103% of $1000=1030

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

Solution Summary

Solution describes the steps to calculate investor's yield to maturity (YTM) and yield to call (YTC) for a coupon paying callable bond.