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Unformatted text preview: P = [.40($933.33) + .60($1,150)] / 1.10 P = $966.67 20-10. In general, this is not likely to happen, although it can (and did). The reason that this bond has a negative YTM is that it is a callable U.S. Treasury bond. Market participants know this. Given the high coupon rate of the bond, it is extremely likely to be called, which means the bondholder will not receive all the cash flows promised. A better measure of the return on a callable bond is the yield to call (YTC). The YTC calculation is the basically the same as the YTM calculation, but the number of periods is the number of periods until the call date. If the YTC were calculated on this bond, it would be positive....
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This note was uploaded on 02/14/2011 for the course FINANCE 620 taught by Professor Halstead during the Fall '09 term at UMBC.
- Fall '09