Peabody Corp. has seven-year bonds outstanding. The bonds pay a coupon of 8.375 percent semiannually and are currently worth $1,063.49. The bonds can be called in three years at a price of $1,075.
a. What is the yield to maturity of these bonds?
b. What is the effective annual yield?
c. What is the realized yield on the bonds if they are called?
d. If you plan to invest in one of these bonds today, what is the expected yield on the investment? Explain.