A Company Issues a Callable (At Par) Five-Year, 7% Coupon

question 14

Multiple Choice

A company issues a callable (at par) five-year, 7% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $110 per $100 of face value. What is the yield to call of this bond when it is released?

• A) 4.71%
• B) 2.73%
• C) 5.66%
• D) 1.40%

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Definitions:

Interpretation

The action of explaining the meaning of something; the way something is understood or explained.

Selection

The process of choosing from a group of options or candidates based on specific criteria or preferences.

Value Difference

The variance in beliefs, priorities, or principles among individuals or groups, often leading to diverse perspectives or conflicts.

Negotiations Impasse

A situation where discussions or bargaining have reached a deadlock, with no apparent solution in sight.