T17

RatePicker Co.'s bonds, issued 2 years ago, currently sell for $1,076. They have an annual coupon rate of 8.77%, with interest payments made semi-annually. The bonds have a 25 -year maturity, a $1,000 par value, and are callable in 10 years from the issue date at $1,065.00. 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 in the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, 2 years after the issue? 8.0571%8.0281%7.4900%8.1347%8.0398%