Taussig Corp.'s bonds currently sell for $960.They have a 6.35% annual coupon rate and a 20-year maturity,but they can be called in 5 years at $1,067.50.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 on into the future.Under these conditions,what rate of return should an investor expect to earn if he or she purchases these bonds?

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If the coupon rate exceeds the YTM,then it is likely that the bonds will be called and replaced with new,lower coupon bonds.In that case,the YTC will be earned.Otherwise,one should expect to earn the YTM. 11ea856c_8bd2_518a_9aec_3758f99b4628_TB1222_00 Expected rate of return = YTC if Coupon > YTM,otherwise it is YTM,so expected rate of return = YTM = 6.72%