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Unformatted text preview: and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds? For YTC, Y6 N= 4 years, PV= $1200, FV= $1000*1.08= $1080 PMT= $110 YTC= rate (4, 110, 1200, 1080) = 6.91% For YTC, Y7 N= 3 years, PV=$1200, FV=$1000*1.07=$1070 PMT=$110 YTC=rate (3, 110,1200, 1070) =5.76% For YTC, Y8 N=2 years, PV=$1200, FV=$1000*1.06=$1060 PMT=$110 YTC=rate (2, 110,1200, 1060) = 3.43% For YTC, Y9 N=1 year, PV=$1200, FV=$100*1.05=$1050 PMT=$110 YTC=rate (1, 110,1200, 1050) = 3.33% As a result, investor usually consider the lower of the yield to call and the yield to maturity as the more indication of the return an investor will actually receive on a callable bond. So, the Firm may call the bond in 9 th year....
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This note was uploaded on 07/25/2011 for the course ECON 101 taught by Professor Herman during the Spring '11 term at Sullivan.
 Spring '11
 herman

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