A Company Issues a Callable (At Par) 20-Year, 5% Coupon

question 42

Multiple Choice

A company issues a callable (at par) 20-year, 5% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $102 per $100 of face value. What is the yield to maturity of this bond when it is released?

• A) 2.40%
• B) 4.84%
• C) 5.60%
• D) 6.66%

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Definitions:

Operating Activities

Business activities related directly to the production and delivery of goods and services.

Net Income

The remaining earnings of a company following the deduction of all expenses and taxes from its total revenue.

Cash Dividends

Payments made by a company to its shareholders from its profits or reserves, representing a share of the corporate earnings.

Financing Activities

Transactions and events that affect long-term liabilities and equity of a company, including issuing debt, repaying loans, and distributing dividends.