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Question 4 (5 marks) Izmir Construction is a company engaged in construction in Turkish west....

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Finance

Question 4 (5 marks)

Izmir Construction is a company engaged in construction in Turkish west. On 1 January 2012 it issued 5,000 5-year bonds with a par value of $1,000 per bond.

They have a current market price of $975, carry annual coupon rate of 9% and are callable at 105 anytime in 3rd, 4th or 5th year.

The interest rate in year 3, 4 and 5 are 10%, 8% and 9%.

Estimate the yield to call (YTC) and yield to maturity (YTM) and tell which rate is a better estimate of the expected rate of return on the bond.

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