Gilligan Co.'s bonds currently sell for $1, 150.They have a 6.75% annual coupon rate and a 15-year maturity, and are callable in 6 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, the YTC or the YTM?

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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. 11ea1b84_8b94_a96f_a54a_55c475d09d1f_TB3581_00