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20 pts Question 1 LO3 Bond Features Maturity (years) 5 Face Value = $1,000 5.00% Coupon Rate = Coupon dates (Annual) Market interest rate 5.00% today Time to call (years) 3 $1,050.00 Called Market interest rate in 2.00% Year 3 The above bond is callable in 3 years. When the bond is issued today, interest rates are 5.00%. In 3 years, the market interest rate is 2.00% . 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? yes it should call back the bonds, it will save $8.49 Ono it should not call back the bonds, it will lose $8.49 Ono it should not call back the bonds, it will lose $7.83 Oyes it should call back the bonds, it will save $7.83 O no it should not call back the bonds, it will lose $8.25 yes it should call back the bonds, it will save $8.25

Answer 1

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BA PLUS - Microsoft Excel (Product Activation Failed) Add-Ins View - 2x Dr General s Wrap Text FMerce Merge & Center - Center File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = Ea Copy Paste B I Format Painter U B- E A E E Clipboard Font F111 Α B C $ -% % 4.0 .00 . Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Alignment Number Cells D F G 95 96 97 AFTER 3 YEARS, RATE = 2% SO YEARS TO MATURITY = 2 98 99 101 102 1058.25 100 ANNUAL BOND CALCULATOR STROKES SET P/Y = C/Y = 1 PMT = -50, FV =-1000, I/Y = 2, N = 2 CPT PV = 103 104 THE PRICE WILL BE 1058.25 105 WHERE AS CALL PRICE = 1050 106 107 ANSWER SO YES, IT SHOULD CALL BACK THE BONDS 108 IT SAVES = 1058.25 - 1050 = 8.25 109 110 111 112 113 ► NPV BOND PV FV Sheet4 Rea ferences BO 130% ANA S SHRAM ER9 * to ENG 20-10-2019