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Kholdy Inc's bonds currently sell for $1,325. They pay a $130 annual coupon and have a 20-year maturity and a par value of $1,000, but they can be...

Kholdy Inc's bonds currently sell for $1,325. They pay a $130 annual coupon and have a 20-year maturity and a par value of $1,000, but they can be called in 5 years at $1,150. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between the bond's YTM and its YTC?

This question was asked on Mar 21, 2010.

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