Final answer:
The nominal yield to maturity and yield to call for a firm's bond depend on various factors and require detailed calculations. Investors typically expect to earn the higher of YTM or YTC depending on market conditions. Bond values fluctuate with market interest rates, affecting yields.
Step-by-step explanation:
To calculate the nominal yield to maturity (YTM) of the firm's bond, one would use the current price of the bond, the face value, the coupon rate, and the time to maturity. However, the nominal YTM calculation requires a financial calculator or bond yield formula and cannot be accurately provided without performing the detailed bond valuation calculations. As for the nominal yield to call (YTC), this is calculated similarly, but it assumes the bond will be called at the earliest call date rather than held to maturity. Given the information provided, to find the YTC, we would use the call price instead of the face value and the time to call as the number of periods. In practice, investors would expect their return on these bonds to be equal to the higher of the two yields, the YTC or YTM, as they would anticipate the issuer would choose the option that is most economical for them, which in this case would be to call the bond due to the lower YTC compared to YTM. An investor's expected return on a bond may consist of interest payments (the bond's coupon rate) and possible capital gains or losses depending on whether the bond was purchased at a discount or premium to its face value. If the market interest rates increase, the value of existing bonds with lower coupon rates will decrease, hence they sell at a discount to attract buyers. Conversely, if the market interest rates decrease, existing bonds with higher coupon rates become more attractive and can sell at a premium.