1. Ranger Inc. would like to issue new 20-year bonds. Initially, the plan was to make the bonds non- callable. If the bonds were made callable after 5 years at a 5% call premium, how would this affect their required rate of return?

a. There is no reason to expect a change in the required rate of return.

b. The required rate of return would decline because the bond would then be less risky to a bondholder.

c. The required rate of return would increase because the bond would then be more risky to a bondholder.

d. It is impossible to say without more information.

e. Because of the call premium, the required rate of return would decline.