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Nine years ago the Templeton Company issued 25-year bonds withan 12% annual coupon rate at their $1,000 par value. The bonds hadan 8% call premium, with 5 years of call protection. TodayTempleton called the bonds.

1. Compute the realized rate of return for an investor whopurchased the bonds when they were issued and held them until theywere called. Round your answer to two decimal places.
   
   %
   
2. Why the investor should or should not be happy that Templetoncalled them.
   1. Since the bonds have been called, interest rates must haverisen sufficiently such that the YTC is greater than the YTM. Ifinvestors wish to reinvest their interest receipts, they can now doso at higher interest rates.
   2. Since the bonds have been called, interest rates must haverisen sufficiently such that the YTC is greater than the YTM. Ifinvestors wish to reinvest their interest receipts, they must do soat lower interest rates.
   3. Since the bonds have been called, investors will receive a callpremium and can declare a capital gain on their tax returns.
   4. Since the bonds have been called, investors will no longer needto consider reinvestment rate risk.
   5. Since the bonds have been called, interest rates must havefallen sufficiently such that the YTC is less than the YTM. Ifinvestors wish to reinvest their interest receipts, they must do soat lower interest rates.