Kahiki's Foods Inc. corporate bonds have 10 years remaining to maturity. The bonds have a face value of $1,000, and a coupon rate of 10%. The company pays $100 interest per bond annually. The present value of the bond is $900. The bond is a callable bond.

Calculate the yield to maturity of the bond (note: PV is negative because it is a cash outflow, i.e., it costs $900 to purchase the bond).

Some bondholders of Kahiki Foods do not understand the difference between yield to maturity and yield to call on callable bonds.

Explain to them the difference between yield to maturity and yield to call.

Answer rating: 100% (QA)

SOLUTION To calculate the yield to maturity YTM of the bond we need to use the present value formula ... View the full answer