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RTE Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,070.35. However, RTE Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on RTE Inc.’s bonds?

Answer :

Answer:

The yield to maturity is 8.24%

The yield to call is 8.82%

Explanation:

The yield to maturity as well as the yield to call were computed using the rate formula in excel which is given as rate(nper,pmt,pv,fv)

The nper is the duration of the bond, it is 18 years for yield to maturity and 8 years for yield to call.

The pmt is the periodic coupon payment at 9%

the future value is $1000 for YTM and $1060 for YTC

Find attached spreadsheet.

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