(c) If the bonds are called, the return will not be the yield-to-maturity of 8.35%, but the yield will be the yield-to-call of 8.13%.The bonds are selling at a premium means that interest rates have fallen when the bonds were initially issued. If the interest rates remain the same from the present level, investor might expect the yield to call because Yield To Call which is 8.13% is less than the expected Yield To Maturity which is at 8.35%.
The investor will expect to earn 8.35% on these bonds. If the bonds are called, the return will not reach the yield to maturity of 8.35% and it will be 8.13% of the interest rate. In this case, the bonds are selling at a premium, means that the interest rate have fallen initially when the bond were issued, such as $xxx. That mean all bondholders would receive 8.13% premium above par ($1,000 per bond) in addition to the principal, as a consolation for the call. Because call features are considered a disadvantage to the investor, callable bonds with longer maturities usually pay a rate at least a quarter point higher than comparable non-callable issues.
d)
Answer: By referring above, the latest investors might expect the firm to call the bonds is in Year 6 which is at 8.27% as the Yield to Call in year 6 is less than the expected Yield to Maturity which is at 8.35%.
By referring above, is the call provision gives the firm the right to call the bonds at the end of each year. If the bonds are called in year 6, its YTC is 8.27%, in year 7