Aziz works for a broker. One of his clients is offered to buy a bond at $1,050. It is a 10%, 15-year bond with a par value of $1,000 and a call price of $1,100. (The bonds first call date is in five years). Coupon payments are made semiannually.
Find the current yield, YTM and YTC on this issue. Which of these yields is the highest? Which is the lowest? Which yield would Aziz use to value this bond? Explain. (4 marks)
Assume that the price of the bond declines to $875. Now which yield is the highest? Which is the lowest? Which yield would Aziz use to value this bond? Explain. (3.5 marks)