CH7

A company is more likely to call its bonds if they are able to replace their current high-coupon debt with less expensive financing. A bond is more likely to be called if its price is -Select-aboveatbelowCorrect 1 of Item 1 parbecause this means that the going market interest rate is less than its coupon rate.

Quantitative Problem: Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 8.8% with semiannual payments of $44, and a par value of $1,000. The price of each bond in the issue is $1,200.00. The bond issue is callable in 5 years at a call price of $1,088. What is the bond's current yield? Do not round intermediate calculations. Round your answer to two decimal places.

%

What is the bond's nominal annual yield to maturity (YTM)? Do not round intermediate calculations. Round your answer to two decimal places.

%

What is the bond's nominal annual yield to call (YTC)? Do not round intermediate calculations. Round your answer to two decimal places.

%

Assuming interest rates remain at current levels, will the bond issue be called?

The firm -Select-shouldshould notCorrect 1 of Item 4 call the bond.