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Assume a bond has a face value of $1,000, coupon rate of 7%, maturity of 9...

Assume a bond has a face value of $1,000, coupon rate of 7%, maturity of 9 years, and can currently be purchased in the market at a price of $1,099. The bond can be called after 5 years, and in that case the call premium paid would be $50. Which is bigger, YTM or YTC? Use two decimals in your calculations for your comparison.

a.) YTM

b.) YTC

c.) They are both the same.

d.) There is not enough information to calculate YTM.

e.) There is not enough information to calculate YTC.

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Answer #1

a) YTM:

=RATE(9,7%*1000,-1099,1000)

=5.57%

b) YTC:

=RATE(5,7%*1000,-1099,1050)

=5.57%

Thus the answer is c) They are both the same

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