Question
Assumption or given situation: Company xyz issued 10 years callable bond in February 2020 at 4% coupon rate. Recently, Company abc issued 10 years callable
Assumption or given situation: Company xyz issued 10 years callable bond in February 2020 at 4% coupon rate. Recently, Company abc issued 10 years callable bond in February 2023 at 8% coupon rate. Both of them are "AAA" rated by Moody's (a rating agency). Note that we are in a rising interest rate environment. a) What will happen to the price of 10 years bond issued in Feb. 2020 in the current falling interest rate environment? b) What is premium price and discount price of bond? c) What is "callable" feature of bond? In which case or situation, firms will "call" back bonds from the market?
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