Question: CashDrain.com has bonds outstanding that mature on your birthday, 2024. These bonds have a 5% coupon rate, with coupons paid semi-annually, and are currently quoted at 94.426.
CashCow.com has bonds outstanding that mature on your birthday, 2024. These bonds have a 7% coupon rate, with coupons paid semi-annually, and are currently quoted at 102.891.
Assume both bonds are callable at face value beginning 5 years before maturity.
1. Calculate the YTM and the YTC for each bond
1. Highlight the yield that would be more relevant for each of the two bonds - yield to maturity or yield to call.
2. For each, explain why that yield is the relevant one.