The company LLC Corp needs additional funds to expand its production capacities. Therefore it issues a bond with a face value of EUR 100 million at a price of 99.87. The maturity is set to be 5 years. The coupon payment is EUR 1 million each year and the payment semi-annually. After 5 years the company promises to pay back the full notional amount. In addition, it includes a call option after 2 years in case revenues would rise even faster.

a) Please calculate the yield to maturity and the yield to call?

b) Please explain the concept of the yield to maturity. What does it mean?

c) Why do you think is the yield to call higher/lower than the yield to ma-turity?