Question

The computation for the yield to call (YTC) is the same as that for the yield to maturity (YTM), except that we substitute the _____ of the bond for the maturity (par) value and _____ for the years to maturity.
Options:
a. market price; the number of years until the bond can be first calledb. face value; five yearsc. call price; the number of years until the bond can be first calledd. principal value; 10 yearse. issue price; the number of years until the bond can be first called

Answer 1

The computation for the yield to call (YTC) is the same as that for the yield to maturity (YTM), except that we substitute the call price of the bond for the maturity (par) value and the number of years until the bond can be first called for the years to maturity.

Answer: Option C

Explanation:

Yield to call (YTC) is a monetary term used to refer to a yield earned by a bondholder if the security is kept until the call date, until the debt instrument matures. This figure can be measured quantitatively as the compound interest rate by which the current value of the expected coupon payments and call price of a bond is equal to the actual market price of the bond. While the anticipated total return on a bond if the bond holds until maturity is known as Yield to maturity (YTM). It is understood as long-term return on bonds, yet is conveyed as an annual rate of return.