YTC VS YTM

Sorry... Another post by me... To business/ finance people out there...

Regarding callable bonds again. Since I typed the following to XY, might as well post it up...

Cus T(typing) = sunk cost.

In the following paragraphs, YTC = yield to call; YTM = yield to maturity.

Analysis on the basis that YTC less than YTM => call at the earliest possible date.

Here, note the derivation of the YTC. It's already based on the assumption that the issuer works to the worst disadvantage of the investor, i.e call the bond at the earliest possible date since that would act to the least benefit to the investor. To further explain that, if the bond can be called between t years to n years (maturity), our calculations are based on the assumption that it will be called after t years, so YTC is calculated by setting P at today's selling price equals to cash flows from years 0 to t.

So let me emphasize again that the value of YTC is already based on the earliest possible date the bonds can be called and that the issuer cannot call any date earlier than that. (In fact, the earlier the bond is called the lower the yield rate of the investor.)

Somewhat a repetition of the previous post, just that YTC is brought to light here.

Hope it helps. =)

This time I didn't dig up last year's notes but I trust my understanding. Anything to correct, please tell me.

STAT (probability, models/ modelling), ECON (though need to read up a bit), FINA (mainly corporate finance), MATH (just a fair bit on proving techniques, linear algebra and multivariate calculus)...

If you need help, can ask me... Because it really helps me to recall whatever I've learnt.

And knowledge is cumulative. =P