Suppose that a large firm wants to raise $25 million in capital for a new investment project. An investment bank analyzes the risk of the firm and determines that the market will bear a 6.0% interest rate. So, they issue a bond whereby the firm will pay a 6% coupon rate that will be paid semi- annually for 10 years. Suppose the bond also includes a call provision that allows the bonds to be retired after two years for a call premium of $100 a. How many bonds would the firm have to issue (Assume $1,000 par)? Number of bonds Suppose that after two years, interest rates increase by 2 percentage points due to an improving economy. Suppose the firm decides to issue the bonds instead and includes a call provision that allows the bonds to be retired after two years for a call premium of $100. Interest is paid semi-annually. b. What is the YTC of the bonds when they are issued? FV PMT PV N 1 c. What is the price of the bonds after two years? FV PV N PMT 1