No marks given if financial calculator appropriate keys are not mentioned where required.

Question 2:

The $1,000 face value XYZ bond has a coupon rate of 12%, with interest paid semi-annually, and matures in 9 years. The bond current price is $1120. The bond can be called in 3 years at a call price of total 106% of par (i.e. $1060).

a) What is the bond's yield to maturity (YTM)?

b) What is the bonds yield to call (YTC)?

c) Would an investor be more likely to earn the YTM or the YTC? Explain.