A corporation has the option to prepay (call) a bond with 4 years to maturity, $50M in remaining principal, a 10% yearly rate, fixed and monthly payments. It can replace this bond with a 4 year bond with the same remaining payment structure. Prepayment penalties are c = $750, 000.

1. How low must the yearly rate on the new bond be to justify calling the old bond (ignoring the option value of waiting to refi)?

2. What yield maintenance rate rym is equivalent to the above prepayment penalty?