Thatcher corporation's bonds yield to maturity is 7.66%
Thatcher corporation's bonds yield to call is 7.77%
What is the difference between yield to maturity and to call?
The yield to maturity is the rate of return an investor in thatcher corporation's bonds would earn over the entire period of bond investment which is 13 years whereas the yield to call is the rate of return until the bond is called in 5 years
The yield in each can be determined using a financial calculator which requires that the calculator be set to its end mode before making necessary inputs as shown below because the coupons would be paid at the end of each semiannual period:
YTM:
N=26(number of semiannual periods in 13 years)
PMT=47.50(semiannual coupon=9.5%*1000/2)
PV=-1150(current bond price)
FV=1000(face value of the bond=redemption value)
CPT(press compute)
I/Y=3.8289035%(semiannual YTM)
annual YTM=3.8289035%*2
annual YTM=7.66%
YTC:
N=10(number of semiannual periods in 5 years)
PMT=47.50(semiannual coupon=9.5%*1000/2)
PV=-1150(current bond price)
FV=1050(call price in 5 years)
CPT(press compute)
I/Y=3.3852663%
(semiannual YTM)
annual YTM=3.3852663%*2
annual YTM=7.77%
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