Final answer:
The student's question involving the calculation of a firm's bond yield to maturity (YTM) and yield to call (YTC) is a finance-related business topic. It requires an understanding of the bond's coupon payments, market price, face value, call features, and how market interest rates affect bond prices. The investor must analyze these factors to accurately determine the returns for holding the bond to maturity or being called.
Step-by-step explanation:
The question at hand falls under the category of Business, specifically related to finance and involves calculations related to a firm's bonds. It touches upon concepts such as yield to maturity (YTM) and yield to call (YTC), both of which are important in assessing the return on investment for a bond. to calculate the YTM and YTC, an investor must account for the coupon payments, face value, market price, and the call feature. The nominal YTM is the rate of return that is earned on a bond if it is held until maturity, factoring in the current bond price, face value, and coupon payments. The nominal YTC, on the other hand, is the rate of return earned on a bond if it is called before it reaches its maturity date.
The investor should take into account that when interest rates rise, bonds with lower coupon rates sell for less than their face value, representing a decrease in the market price. Conversely, when interest rates drop, bonds with higher coupon rates become more valuable, selling for more than their face value. Therefore, these market fluctuations should be considered when calculating the YTM and YTC for a full understanding of potential investment outcomes.