A B D E E F G H J K L M 49 The YTC is lower than the YTM because if the bond is called, the buyer will lose the difference between the call price and the 50 current price in just 4 years, and that loss will offset much of the interest imcome. Note too that the bond is likely to be called 51 and replaced, hence that the YTC will probably be eamed. 52 53 NOW ANSWER THE FOLLOWING NEW QUESTIONS: 54 55 e. How would the price of the bond be affected by changing the going market interest rate? (Hint: Conduct a sensitivity 56 analysis of price to changes in the going market interest rate for the bond. Assume that the bond will be called if and 57 only if the going rate of interest falls below the coupon rate. That is an oversimplification, but assume it anyway for 58 purposes of this problem.) 59 60 Nominal market rate, r: 8% 61 Value of bond if it's not called: $1,000.00 62 Value of bond if it's called: $1,027.02 The bond would not be called unless r