Problem:
Mega Industries Corp has eighteen years of a bond outstanding to maturity, an 8.25% nominal coupon, with semiannual payments. The bond has a 6.5% nominal yield to maturity and can be called at a price of $1,120.
Requirement:
Question 1: What is the bond's nominal yield to maturity when called?
Question 2: What is the bond's effective yield? If the inflation rate is 2.95% what is the real rate of return?
Note: Provide support for your underlying principle.