Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

Which of the following best defines the yield to call (YTC) of a bond?

The annual interest payment divided by the current market price of the bond.

The rate of return earned on a bond if it is held until the call date, assuming it is called at the earliest possible date and at the call price.

The total return on a bond including interest and capital gains, held for one year.

The rate of return earned on a bond if it is held until maturity.

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Verified step by step guidance

Step 1: Understand the concept of Yield to Call (YTC). Yield to Call is the rate of return earned on a bond if it is held until the call date, assuming the bond is called at the earliest possible date and at the call price. This differs from Yield to Maturity (YTM), which assumes the bond is held until its maturity date.

Step 2: Identify the key components required to calculate YTC. These include the bond's call price, the time until the call date, the annual coupon payment, and the current market price of the bond.

Step 3: Use the formula for YTC. The formula is: \( YTC = \frac{C + \frac{(Call\ Price - Current\ Price)}{Years\ to\ Call}}{\frac{(Call\ Price + Current\ Price)}{2}} \), where \( C \) is the annual coupon payment.

Step 4: Break down the formula. The numerator represents the annual coupon payment plus the average annual capital gain (or loss) if the bond is called. The denominator represents the average price of the bond over the holding period.

Step 5: Apply the formula to the bond's specific details. Plug in the values for the call price, current market price, annual coupon payment, and years to call to calculate the YTC. This will give the rate of return if the bond is called at the earliest possible date.