Izmir Construction is a company engaged in construction in Turkish west. On 1 January 2012 it issued 5,000 5-year bonds with a par value of $1,000 per bond.  They have a current market price of $975, carry annual coupon rate of 9% and are callable at 105 anytime in 3rd, 4th or 5th year.  The interest rate in year 3, 4 and 5 are 10%, 8% and 9%.  Estimate the yield to call (YTC) and yield to maturity (YTM) and tell which rate is a better estimate of the expected rate of return on the bond.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Izmir Construction is a company engaged in construction in Turkish west. On 1 January 2012 it issued 5,000 5-year bonds with a par value of $1,000 per bond. 

They have a current market price of $975, carry annual coupon rate of 9% and are callable at 105 anytime in 3rd, 4th or 5th year. 

The interest rate in year 3, 4 and 5 are 10%, 8% and 9%. 

Estimate the yield to call (YTC) and yield to maturity (YTM) and tell which rate is a better estimate of the expected rate of return on the bond.

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