In 2000, BCC issued 8% percent debentures that will mature on December 1, 2040.

a. If an investor purchased one of these bonds ($1,000 denomination) on December 1, 2010, for $1,050, determine the yield-to-maturity. Explain why investors would be willing to pay $1,050 on December 1, 2010, for one of these bonds when they are going to receive only $1,000 when the bond matures in 2040.

b. The BCC 8% percent debentures are callable by the company on December 1, 2015, at $1,044.50. Determine the yield to call as of December 1, 2015, assum- ing that BCC calls the bonds on that date. PO85