Question
LO3 Bond Features Maturity (years) 5 Face Value = $1,000 Coupon Rate = 5.00% Coupon dates (Annual) Market interest rate today 5.00% Time to call
LO3
| Bond Features | |
| Maturity (years) | 5 |
| Face Value = | $1,000 |
| Coupon Rate = | 5.00% |
| Coupon dates (Annual) | |
| Market interest rate today | 5.00% |
| Time to call (years) | 3 |
| Price if Called | $1,050.00 |
| Market interest rate in Year 3 | 4.00% |
The above bond is callable in 3 years. When the bond is issued today, interest rates are 5.00% . In 3 years, the market interest rate is 4.00% . Should the firm call back the bonds in year 3 and if so, how much would the firm save or lose by calling back the bonds?
Group of answer choices
yes it should call back the bonds, it will save $29.58
no it should not call back the bonds, it will lose $31.14
no it should not call back the bonds, it will lose $29.58
yes it should call back the bonds, it will save $32.07
yes it should call back the bonds, it will save $31.14
no it should not call back the bonds, it will lose $32.07
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Entrepreneurial Financial Management An Applied Approach
Authors: Jeffrey R Cornwall, David O Vang, Jean M Hartman
5th Edition
0367335417, 978-0367335410
