Question

Fuzzy Badger Transport Company has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1130.35. However, Fuzzy Badger Transport Company may call the bonds in eight years at a call price of $1,060. What are the YTM and yield to call (YTC) on bonds? Fuzzy Badger Transport Company’s bonds have a yield-to-maturity (YTM) of and a yield-to-call (YTC) of .

Answer 1

a). To find the YTM, we need to put the following values in the financial calculator:

INPUT	18		-1,130.35	9%x1,000=90	1,000
TVM	N	I/Y	PV	PMT	FV
OUTPUT		7.64

Hence, YTM = 7.64%

b). To find the YTC, we need to put the following values in the financial calculator:

INPUT	8		-1,130.35	9%x1,000=90	1,060
TVM	N	I/Y	PV	PMT	FV
OUTPUT		7.36

Hence, YTC = 7.36%