medium · Principles of Finance valuation
Consider a bond with a 5% coupon trading at 103. It is callable in 2 years at 101.
If an investor calculates YTM and YTC, which result is mathematically guaranteed if the bond is called?
- The return will be exactly the Current Yield of 4.85%.
- The investor will earn the YTM, which is exactly 5%.
- The investor will earn the YTC, which is lower than 5%.
- The investor will earn a return higher than the 5% coupon.
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