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Question 1 (15 points)

(1) XYZ just issued bonds with the following terms:

Principal amount $1,000

Annual coupon rate 15% starting after 4 years (that is in year 5)

Maturity 10 years

Callable @ $1,150 (that is face value + one years interest)

a) Based of the features described above, this bond belongs to two categories of corporate bonds that we discussed in the class. What are they? (3 points)

b) What is the bonds price if comparable debt yields 13 percent? You must show your full work to earn all the points in this question (9 points)

c)What is the bonds current yield? (1 point)

d) Based on your answers so far, do you think the issuer of this bond will call this bond? Why or why not? (2 points)