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:

Infectious Disease

Diseases caused by pathogenic microorganisms, such as bacteria, viruses, parasites, or fungi; these diseases can be spread, directly or indirectly, from one person to another.

Aches And Pains

General and nonspecific discomforts or soreness often associated with overexertion, stress, or minor health issues.

Difference Threshold

The minimum difference between two stimuli required for detection 50 percent of the time. We experience the difference threshold as a just noticeable difference (or jnd).

Two Stimuli

Two stimuli refer to a pair of distinct sensory inputs that can be presented simultaneously or sequentially to investigate responses or interactions within perceptual and cognitive processes.