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E. Imagine a 5-year fixed coupon bond that could be extended for an additional two years at the same fixed rate at the issuer's election.

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E. Imagine a 5-year fixed coupon bond that could be extended for an additional two years at the same fixed rate at the issuer's election. This election may be made anytime during the year preceding the original maturity date of the bond. Identify the option embedded in this bond and describe under what circumstances the issuer might exercise this option. (7 points)

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