Assume a company issued a callable bond with an 8% coupon rate a few years ago....
Assume a company issued a callable bond with an 8% coupon rate a few years ago. Which of the following changes are likely to prompt the firm to call the bond?
a.) The market interest rate increases to 10%
b.) The market interest rate decreases to 5%
c.) The corporate tax rate increases to 45%
d.) The corporate tax rate decreases to 35%
e.) None of these changes would prompt a bond to be called.
Homework Answers
Bond prices are inversely affected by the changes in market interest rates. If market interest rates decrease, bond price will increase. When bond price exceeds issued price, issuer will call the bonds.
Hence, correct option is b.) The market interest rate decreases to 5%.
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Periods per year:
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Periods to maturity:
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