A Firm Wishes to Issue a Perpetual Callable Bond

question 3

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) $1000.00.
• E) $1031.74.

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Definitions:

Implantation

The process by which a fertilized egg attaches to the lining of the uterus, beginning the stages of pregnancy.

Chorionic Villi

Finger-like projections from the chorion that extend into the uterine wall, facilitating nutrient exchange between mother and fetus.

Syncytiotrophoblast

Outer layer of the trophoblast composed of multinucleated cells.

Amniotic Cavity

A fluid-filled sac that encloses and protects the developing fetus in the uterus.