A fiRm Wishes to Issue a Perpetual Callable Bond

question 23

Multiple Choice

A firm wishes to issue a perpetual callable bond. The current interest rate is 7%. Next year, the interest rate will be 6.5% or 8.25% with equal probability. The bond is callable at €1,075, and it will
Be called if the interest rate drops to 6.5%.
If the coupon were set to €70 what would the bond sell for?

• A)€ 824.61
• B)€ 898.82
• C)€ 964.25
• D)€1,000.00
• E)€1,031.74

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Definitions:

Eukaryotes

Organisms whose cells contain a nucleus and other membrane-bound organelles, including animals, plants, fungi, and protists.

Phosphorylation

The introduction of a phosphate group into an organic molecule. See kinases.

ATP

Adenosine triphosphate, a high-energy molecule used for energy storage and transfer within cells.

Electron Transport Chain

A series of complexes that transfer electrons from electron donors to electron acceptors via redox reactions, coupled with the transfer of protons across a membrane, generating ATP.