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1Consider a firm financed solely by common stock and a single callable bond issue. Assume that the bond is a pure discount bond. Is there

1Consider a firm financed solely by common stock and a single callable bond issue. Assume that the bond is a pure discount bond. Is there any circumstance in which the firm should call the bond before the maturity date? Would such an exercise of the firms call option discard the time premium? Explain.

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