In: Finance
LO3A Bond Features Maturity (years) 5 Face Value = $1,000 Coupon Rate = 3.00% Coupon dates (Annual) Market interest rate today 3.00% Time to call (years) 3 Price if Called $1,030.00 Market interest rate in Year 3 1.00% The above bond is callable in 3 years. When the bond is issued today, interest rates are 3.00% . In 3 years, the market interest rate is 1.00% . 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?
A yes it should call back the bonds, it will save $9.41
B yes it should call back the bonds, it will save $8.94
C no it should not call back the bonds, it will lose $9.69
D yes it should call back the bonds, it will save $9.69
E no it should not call back the bonds, it will lose $8.94
F no it should not call back the bonds, it will lose $9.41
LO3B
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 | 4.00% |
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 4.00% . 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?
Group of answer choices
A yes it should call back the bonds, it will save $13.82
B no it should not call back the bonds, it will lose $12.75
C yes it should call back the bonds, it will save $12.75
D yes it should call back the bonds, it will save $13.42
E no it should not call back the bonds, it will lose $13.82
F no it should not call back the bonds, it will lose $13.42
Answer to Question "LO3A" is "A yes it should call back
the bonds, it will save $9.41"
Answer to Question "LO3B" is "F no it should not call back the
bonds, it will lose $13.42"