Suppose that the Government has an outstanding bond that has the face value of $$100$m and $5\%$coupon rate payable semi$-$annually. The bond will mature in $5$ years and it is currently callable at $102\%$ of the face value.

The current market interest for a new Government of Guam $5-$year bond is $2\%$ semi$-$annual payment. Should the Government of Guam refinance the outstanding bond?

We can analyze the problem in the following two alternative ways:

$1.$ what would be the value of the outstanding bond, were it not callable $?$

$2.$ What would be the cashflow of a new bond whose principal is $$102?$