Question

A firm's bonds have a maturity of 10 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 5 years at $1,184, and currently sell at a price of $1,332.41.

What is their nominal yield to maturity? Round your answer to two decimal places.
What is their nominal yield to call? Round your answer to two decimal places.

Answer 1

Yield to maturity is the rate of return the investor will get if he/she hold the bold till maturity period

So YTM is like internal rate of return, if we discount all the cash inflow from the bond using YTM, the present value will be equal to the bond current price.

YTM is calculated using Excel, the function used is (IRR)

Pls refer below table

Year	Cash flow	Amount
0	Bod price (Outflow)	-1332.41
1	Coupon (Inflow)	55
2	Coupon (Inflow)	55
3	Coupon (Inflow)	55
4	Coupon (Inflow)	55
5	Coupon (Inflow)	55
6	Coupon (Inflow)	55
7	Coupon (Inflow)	55
8	Coupon (Inflow)	55
9	Coupon (Inflow)	55
10	Coupon (Inflow)	55
11	Coupon (Inflow)	55
12	Coupon (Inflow)	55
13	Coupon (Inflow)	55
14	Coupon (Inflow)	55
15	Coupon (Inflow)	55
16	Coupon (Inflow)	55
17	Coupon (Inflow)	55
18	Coupon (Inflow)	55
19	Coupon (Inflow)	55
20	Par + Coupon (Inflow	1055
	YTM	3.22%
	Formula	=IRR(G44:G64)

YTM (early = 3.22* 2 = 6.44%

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Yield to call

Year	Cash flow	Amount
0	Bod price (Outflow)	-1184
1	Coupon (Inflow)	55
2	Coupon (Inflow)	55
3	Coupon (Inflow)	55
4	Coupon (Inflow)	55
5	Coupon (Inflow)	55
6	Coupon (Inflow)	55
7	Coupon (Inflow)	55
8	Coupon (Inflow)	55
9	Coupon (Inflow)	55
10	Coupon (Inflow)+ premium	1239
	YTC	4.65%
	Formula	=IRR(G44:G64)

YTC = 4.65* 2 = 9.3%

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