Arnot International's bonds have a current market price of $$1,200.$ The bonds have a $10\%$ annual coupon payment, a $$1,000$ face value, and $10$ years left until maturity. The bonds may be called in $5$ years at $109\%$ of face value $($call price $=$ $$1,090).$

What is the yield to maturity? Round your answer to two decimal places.

$\%$

What is the yield to call if they are called in $5$ years? Round your answer to two decimal places.

$\%$

Which yield might investors expect to earn on these bonds, and why?

a$.$ Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC$.$

b$.$ Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM$.$

c$.$ Investors would expect the bonds to be called and to earn the YTC because the YTM is less than the YTC$.$

d$.$ Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC$.$

The bond's indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year $5.$ In Year $5,$ they may be called at $109\%$ of face value, but in each of the next $4$ years the call percentage will decline by $1$ percentage point. Thus, in Year $6$ they may be called at $108\%$ of face value, in Year $7$ they may be called at $107\%$ of face value, and so on$.$ If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?

a$.$ In $6$ years

b$.$ In $7$ years

c$.$ In $8$ years

d$.$ In $9$ years

e$.$ Bonds are always called