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Yield to Maturity and Yield to Call

Arnot International's bonds have a current market price of $$1,350.$ The bonds have an $11\%$ annual coupon payment, a $$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?

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

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

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

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

$-$Select$-$

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?