LO3A Bond Features Maturity (years) 5 Face Value = $1,000 Coupon Rate = 3.00% Coupon dates...

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

Solutions

Expert Solution

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"

jeff jeffy answered 1 year ago

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