Explain the difference between yield to maturity and yield to call.
Halley Enterprises’ bonds currently sell for $975. They have a seven-
year maturity, an annual coupon of $90, and a par value of $1,000.
What is their yield to maturity? Their current yield? (9.51%; 9.23%)
The Henderson Company’s bonds currently sell for $1,275. They pay
a $120 annual coupon and have a 20-year maturity, but they can be
called in 5 years at $1,120. What is their YTM and their YTC, and
which is “more relevant” in the sense that investors should expect to
earn it?
