A Firm Wishes to Issue a Perpetual Callable Bond

question 41

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%. What is the cost of the call provision to the firm if the bond sells for $1,000 today?

• A) -$71.43.
• B) $0.00.
• C) $77.41.
• D) $178.57.

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Definitions:

Directive Therapy Relationship

A therapeutic approach where the therapist actively guides and provides specific directions to the patient to achieve therapeutic goals.

High Resistance

Refers to a scenario where an individual shows substantial opposition or difficulty in accepting or engaging with therapeutic techniques or interventions.

Minimally Directive

An approach in therapy or guidance in which the counselor or therapist provides very little direction, allowing individuals to explore their thoughts and feelings primarily on their own.

Beutler and Harwood

Researchers known for their contributions to clinical psychology, particularly in the areas of psychotherapy research and practice.