Problem:
It is now January 1, 2014, and you are considering the purchase of an outstanding bond that was issued on January 1, 2012. It has an 8.5% annual coupon and had a 15-year original maturity. (It matures on December 31, 2026.) There is 5 years of call protection (until December 31, 2016), after which time it can be called at 109-that is, at 109% of par, or $1,090. Interest rates have declined since it was issued; and it is now selling at 111.545% of par, or $1,115.45.
Required:
Question 1: What is the yield to maturity?
Question 2: What is the yield to call?
Note: Explain all steps comprehensively.