Kaufman Enterprises has bonds outstanding with a $1,000 facevalue and 10 years left until maturity. They have an 12% annualcoupon payment, and their current price is $1,180. The bonds may becalled in 5 years at 109% of face value (Call price = $1,090).

1. What is the yield to maturity? Round your answer to two decimalplaces.
   %
   
2. What is the yield to call if they are called in 5 years? Roundyour answer to two decimal places.
   %
   
3. Which yield might investors expect to earn on these bonds?Why?
   
   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 less than the YTM.
   3. Investors would expect the bonds to be called and to earn theYTC 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 greater than the YTM.
   5. Investors would not expect the bonds to be called and to earnthe YTM because the YTM is greater than the YTC.
   
   -Select I-V
   
4. The bond's indenture indicates that the call provision givesthe firm the right to call the bonds at the end of each yearbeginning in Year 5. In Year 5, the bonds may be called at 109% offace value; but in each of the next 4 years, the call percentagewill decline by 1%. Thus, in Year 6, they may be called at 108% offace value; in Year 7, they may be called at 107% of face value;and so forth. If the yield curve is horizontal and interest ratesremain at their current level, when is the latest that investorsmight expect the firm to call the bonds?
   
   In Year (5,6,7,8,9)?