What are Yield to Maturity (YTM) and Yield to Call (YTC)

Project instructions:
What are Yield to Maturity (YTM) and Yield to Call (YTC)?

By calculating the present and future value of bonds, managers can make sound decisions about their potential strengths and weaknesses as investments.

1. What terms (or inputs) are needed to calculate yield to maturity (YTM)? How does this compare to calculating yield to call (YTC)?

2. Provide the steps taken to calculate YTM using a calculator or MS Excel.

3. Calculate Problem 7-2, at the end of Chapter 7 in your text, Fundamentals of Financial Management, and show your work.
7-2 Current yield and yield to maturity: A bond has a $1,000 per value, 10 years to maturity, a 7 percent annual coupon, and sells for $985
a. What is the current yield?
b. What is its yield to maturity (YMT)?
c. Assume that the yield to maturity remains constant for the next 3 years. What will the price be 3 years from today?

4. Find a bond on the Wall Street Journal or other online service and calculate its YTM. Show your calculations. Explain why your bond is trading at a premium or

discount based on current market conditions. How does bond pricing help forecast future interest rates, or does it? Why?

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