Bond Features Maturity (years) 5 Face Value = $1,000 Coupon Rate = 7.00% Coupon dates (Annual)...

Bond Features

Maturity (years)	5
Face Value =	$1,000
Coupon Rate =	7.00%
Coupon dates (Annual)
Market interest rate today	7.00%
Time to call (years)	3
Price if Called	$1,070.00

Market interest rate in Year 3	5.00%

The above bond is callable in 3 years. When the bond is issued today, interest rates are 7.00% . In 3 years, the market interest rate is 5.00% . 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?

no it should not call back the bonds, it will lose $31.17

no it should not call back the bonds, it will lose $32.81

yes it should call back the bonds, it will save $32.81

yes it should call back the bonds, it will save $31.17

yes it should call back the bonds, it will save $33.80

no it should not call back the bonds, it will lose $33.80

Expert Solution

jeff jeffy answered 2 years ago

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