The price of Diablo Hot Sauce Inc.'s bond in the secondary market is $1,027.50. Its coupon rate is 7%, paid annually. This bond matures in 12 years and is callable in 2. (You may answer whichever questions appeal to you.)
a) What is the bond's yield-to-maturity (YTM)?
b) Explain the answer in a above to your client, concluding your explanation with the variable i.
c) What is the bond's yield-to-call (YTC)?
d) Explain the answer in c above to your client, concluding your explanation with the variable i.
e) If the client buys this bond today, which should she expect to earn, the YTM or YTC? Why?