It is now January 1, 2019, and you are considering the purchaseof an outstanding bond that was issued on January 1, 2017. It has a9% annual coupon and had a 15-year original maturity. (It matureson December 31, 2031.) There is 5 years of call protection (untilDecember 31, 2021), after which time it can be called at 108—thatis, at 108% of par, or $1,080. Interest rates have declined sinceit was issued, and it is now selling at 111.55% of par, or$1,115.50.

1. What is the yield to maturity? Do not round intermediatecalculations. Round your answer to two decimal places.

   %

   What is the yield to call? Do not round intermediatecalculations. Round your answer to two decimal places.

   %

2. If you bought this bond, which return would you actually earn?
   1. Investors would expect the bonds to be called and to earn theYTC because the YTC is greater than the YTM.
   2. Investors would not expect the bonds to be called and to earnthe YTM because the YTM is greater than the YTC.
   3. Investors would not expect the bonds to be called and to earnthe YTM because the YTM is less than the YTC.
   4. Investors would expect the bonds to be called and to earn theYTC because the YTC is less than the YTM.

• Suppose the bond had been selling at a discount rather than apremium. Would the yield to maturity have been the most likelyreturn, or would the yield to call have been most likely?
  1. Investors would not expect the bonds to be called and to earnthe YTM because the YTM is less than the YTC.
  2. Investors would expect the bonds to be called and to earn theYTC because the YTC is greater than the YTM.
  3. Investors would expect the bonds to be called and to earn theYTC because the YTC is less than the YTM.
  4. Investors would not expect the bonds to be called and to earnthe YTM because the YTM is greater than the YTC.