Allied Corp.'s bonds currently sell for $850. They have a 6.35% semiannual coupon rate and a 10-year maturity, but they can be called in 5 years at a call price of $1,060.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future.

a) Calculate the effective yield to maturity.

b) Calculate the effective yield to call.

c) What rate of return should an investor expect to earn if he or she purchases these bonds? Explain your reasoning.

Mention the appropriate BA II Plus keys (where required).