A fiRm Wishes to Issue a Perpetual Callable Bond

question 52

Multiple Choice

A firm wishes to issue a perpetual callable bond. The current interest rate is 9%. Next year, there is a 40% chance that the interest rate will be 5% and a 60% chance that the rate will be 13.3333%. The
Bond is callable at €1,090, and it will be called if the interest rate drops to 5%.
If the bond sells for par today, what is the coupon?

• A)€90.00
• B)€118.91
• C)€130.00
• D)€133.33
• E)€144.33

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Definitions:

Thoroughfare Channel

Channel for blood through a capillary bed from an arteriole to a venule.

Capillary Bed

A capillary bed is a network of capillaries, which are small blood vessels, where exchange of water, oxygen, carbon dioxide, and many other nutrient and waste chemical substances occur between blood and surrounding tissues.

Sinusoid

Terminal blood vessel having a larger diameter than an ordinary capillary.

Precapillary Sphincter

Smooth muscle sphincter that regulates blood flow through a capillary.