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Yesterday you paid $1000 for a 8% coupon, $1000 face value 4-year bond. It is callable at the end year 1 (after it makes the
Yesterday you paid $1000 for a 8% coupon, $1000 face value 4-year bond. It is callable at the end year 1 (after it makes the first year-end coupon payment) for $1100. The annual discount rate on this bond has just fallen to 2%. What will this bond be selling for today? If you had intended to hold this bond until it matured, how much money did the call provision cost you in total over all five years? Please show all work and do not use excel or a finance calculator.
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